The Salvatore Ferragamo (BIT:SFER) Share Price Is Down 20% So Some Shareholders Are Getting Worried

September 17, 2019
  •  Updated
November 29, 2022
BIT:SFER
Source: Shutterstock

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But every investor is virtually certain to have both over-performing and under-performing stocks. At this point some shareholders may be questioning their investment in Salvatore Ferragamo S.p.A. (BIT:SFER), since the last five years saw the share price fall 20%. The falls have accelerated recently, with the share price down 14% in the last three months.

See our latest analysis for Salvatore Ferragamo

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 five years over which the share price declined, Salvatore Ferragamo's earnings per share (EPS) dropped by 9.7% each year. This fall in the EPS is worse than the 4.3% compound annual share price fall. So investors might expect EPS to bounce back -- or they may have previously foreseen the EPS decline.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

BIT:SFER Past and Future Earnings, September 18th 2019
BIT:SFER Past and Future Earnings, September 18th 2019

Dive deeper into Salvatore Ferragamo's key metrics by checking this interactive graph of Salvatore Ferragamo's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Salvatore Ferragamo's TSR for the last 5 years was -13%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market gained around 3.7% in the last year, Salvatore Ferragamo shareholders lost 15% (even including dividends) . However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 2.7% 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. Before forming an opinion on Salvatore Ferragamo you might want to consider these 3 valuation metrics.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IT 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 editorial-team@simplywallst.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.