Atul (NSE:ATUL) stock falls 4.1% in past week as three-year earnings and shareholder returns continue downward trend

For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term Atul Ltd (NSE:ATUL) shareholders, since the share price is down 33% in the last three years, falling well short of the market return of around 61%. And the ride hasn't got any smoother in recent times over the last year, with the price 27% lower in that time. Shareholders have had an even rougher run lately, with the share price down 21% in the last 90 days.

If the past week is anything to go by, investor sentiment for Atul isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the three years that the share price fell, Atul's earnings per share (EPS) dropped by 5.9% each year. This reduction in EPS is slower than the 13% annual reduction in the share price. So it seems the market was too confident about the business, in the past.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Atul has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Atul will grow revenue in the future.

A Different Perspective

We regret to report that Atul shareholders are down 27% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 3.8%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 0.2% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 1 warning sign for Atul that you should be aware of before investing here.

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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Indian exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.