As an investor its worth striving to ensure your overall portfolio beats the market average. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term The Sandesh Limited (NSE:SANDESH) shareholders have had that experience, with the share price dropping 44% in three years, versus a market decline of about 2.7%.
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the three years that the share price fell, Sandesh's earnings per share (EPS) dropped by 2.8% each year. This reduction in EPS is slower than the 18% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. The less favorable sentiment is reflected in its current P/E ratio of 5.68.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into Sandesh's key metrics by checking this interactive graph of Sandesh's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We've already covered Sandesh's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Sandesh shareholders, and that cash payout explains why its total shareholder loss of 43%, over the last 3 years, isn't as bad as the share price return.
A Different Perspective
Sandesh shareholders are down 13% for the year (even including dividends), but the market itself is up 8.0%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand Sandesh better, we need to consider many other factors. Take risks, for example - Sandesh has 2 warning signs (and 1 which is significant) we think you should know about.
We will like Sandesh 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.
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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. 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.
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