Century Textiles and Industries Limited (NSE:CENTURYTEX) shareholders should be happy to see the share price up 24% in the last month. But that doesn't change the fact that the returns over the last three years have been disappointing. Regrettably, the share price slid 71% in that period. So it's good to see it climbing back up. While many would remain nervous, there could be further gains if the business can put its best foot forward.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the three years that the share price fell, Century Textiles and Industries' earnings per share (EPS) dropped by 31% each year. This change in EPS is reasonably close to the 33% average annual decrease in the share price. So it seems that investor expectations of the company are staying pretty steady, despite the disappointment. It seems like the share price is reflecting the declining earnings per share.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of Century Textiles and Industries' earnings, revenue and cash flow.
A Different Perspective
Investors in Century Textiles and Industries had a tough year, with a total loss of 19% (including dividends), against a market gain of about 19%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Even so, be aware that Century Textiles and Industries is showing 3 warning signs in our investment analysis , and 1 of those is concerning...
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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 IN exchanges.
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