Earnings are growing at Ramco Cements (NSE:RAMCOCEM) but shareholders still don't like its prospects

Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by The Ramco Cements Limited (NSE:RAMCOCEM) shareholders over the last year, as the share price declined 14%. That's disappointing when you consider the market returned 41%. At least the damage isn't so bad if you look at the last three years, since the stock is down 11% in that time.

After losing 4.0% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

View our latest analysis for Ramco Cements

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 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.

Even though the Ramco Cements share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.

It's fair to say that the share price does not seem to be reflecting the EPS growth. So it's easy to justify a look at some other metrics.

With a low yield of 0.3% we doubt that the dividend influences the share price much. Ramco Cements' revenue is actually up 6.9% over the last year. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Ramco Cements is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

A Different Perspective

Investors in Ramco Cements had a tough year, with a total loss of 14% (including dividends), against a market gain of about 41%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 2% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Ramco Cements better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Ramco Cements (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

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.