Market is not liking Sanix Holdings' (TSE:4651) earnings decline as stock retreats 12% this week

The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. For example, the Sanix Holdings Incorporated (TSE:4651) share price is down 30% in the last year. That's disappointing when you consider the market declined 0.3%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 13% in three years. The last week also saw the share price slip down another 12%. But this could be related to the soft market, which is down about 5.5% in the same period.

Since Sanix Holdings has shed JP¥1.5b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Unhappily, Sanix Holdings had to report a 31% decline in EPS over the last year. Remarkably, he share price decline of 30% per year is particularly close to the EPS drop. Given the lower EPS we might have expected investors to lose confidence in the stock, but that doesn't seemed to have happened. Rather, the share price is remains a similar multiple of the EPS, suggesting the outlook remains the same.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

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

A Different Perspective

While the broader market lost about 0.3% in the twelve months, Sanix Holdings shareholders did even worse, losing 30%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3% over the last half decade. We realise that Baron Rothschild 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 business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Sanix Holdings , and understanding them should be part of your investment process.

We will like Sanix Holdings better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) 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 Japanese 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.