The three-year underlying earnings growth at Kansai Nerolac Paints (NSE:KANSAINER) is promising, but the shareholders are still in the red over that time

As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Kansai Nerolac Paints Limited (NSE:KANSAINER) shareholders have had that experience, with the share price dropping 33% in three years, versus a market return of about 72%. And the ride hasn't got any smoother in recent times over the last year, with the price 21% lower in that time. The falls have accelerated recently, with the share price down 16% in the last three months.

With the stock having lost 5.5% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

View our latest analysis for Kansai Nerolac Paints

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Although the share price is down over three years, Kansai Nerolac Paints actually managed to grow EPS by 5.3% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

With a rather small yield of just 1.0% we doubt that the stock's share price is based on its dividend. We note that, in three years, revenue has actually grown at a 8.0% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Kansai Nerolac Paints further; while we may be missing something on this analysis, there might also be an opportunity.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Kansai Nerolac Paints is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Kansai Nerolac Paints will earn in the future (free analyst consensus estimates)

A Different Perspective

Kansai Nerolac Paints shareholders are down 20% for the year (even including dividends), but the market itself is up 26%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4% 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. Case in point: We've spotted 2 warning signs for Kansai Nerolac Paints you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.