Generally speaking long term investing is the way to go. But along the way some stocks are going to perform badly. For example the Eros International Media Limited (NSE:EROSMEDIA) share price dropped 55% over five years. That’s an unpleasant experience for long term holders. And we doubt long term believers are the only worried holders, since the stock price has declined 55% over the last twelve months. Furthermore, it’s down 11% in about a quarter. That’s not much fun for holders.
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.
During the unfortunate half decade during which the share price slipped, Eros International Media actually saw its earnings per share (EPS) improve by 5.8% per year. So it doesn’t seem like EPS is a great guide to understanding how the market is valuing the stock. Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS. Because of the sharp contrast between the EPS growth rate and the share price growth, we’re inclined to look to other metrics to understand the changing market sentiment around the stock.
It could be that the revenue decline of 5.4% per year is viewed as evidence that Eros International Media is shrinking. That could explain the weak share price.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
We know that Eros International Media has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Eros International Media will earn in the future (free profit forecasts)
A Different Perspective
Investors in Eros International Media had a tough year, with a total loss of 55%, against a market gain of about 2.6%. 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 15% per year over five years. We realise that Buffett 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 businesses. If you would like to research Eros International Media in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
We will like Eros International Media better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.