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 Prakash Industries Limited (NSE:PRAKASH) shareholders, since the share price is down 39% in the last three years, falling well short of the market return of around 57%. The falls have accelerated recently, with the share price down 14% in the last three months. Of course, this share price action may well have been influenced by the 7.7% decline in the broader market, throughout the period.
After losing 14% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Prakash Industries saw its EPS decline at a compound rate of 36% per year, over the last three years. In comparison the 15% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into Prakash Industries' key metrics by checking this interactive graph of Prakash Industries's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We've already covered Prakash Industries' share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Prakash Industries' TSR, which was a 29% drop over the last 3 years, was not as bad as the share price return.
A Different Perspective
While the broader market gained around 14% in the last year, Prakash Industries shareholders lost 1.0%. 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, longer term shareholders are suffering worse, given the loss of 3% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. It's always interesting to track share price performance over the longer term. But to understand Prakash Industries better, we need to consider many other factors. For example, we've discovered 3 warning signs for Prakash Industries (1 is a bit unpleasant!) that you should be aware of before investing here.
But note: Prakash Industries may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.
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.