Reflecting on Lotte Confectionery's (KRX:280360) Share Price Returns Over The Last Three Years

As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Lotte Confectionery Co., Ltd. (KRX:280360) shareholders, since the share price is down 36% in the last three years, falling well short of the market return of around 29%. And over the last year the share price fell 27%, so we doubt many shareholders are delighted.

View our latest analysis for Lotte Confectionery

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 three years of share price decline, Lotte Confectionery actually saw its earnings per share (EPS) improve by 40% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The modest 1.2% dividend yield is unlikely to be guiding the market view of the stock. Revenue is actually up 10% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Lotte Confectionery further; while we may be missing something on this analysis, there might also be an opportunity.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that Lotte Confectionery has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Lotte Confectionery stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

The last twelve months weren't great for Lotte Confectionery shares, which cost holders 26%, including dividends, while the market was up about 42%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 10% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 3 warning signs for Lotte Confectionery you should be aware of.

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 KR 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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