The past five years for NCSOFT (KRX:036570) investors has not been profitable

Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. For example, we sympathize with anyone who was caught holding NCSOFT Corporation (KRX:036570) during the five years that saw its share price drop a whopping 72%. Furthermore, it's down 23% in about a quarter. That's not much fun for holders.

Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.

Check out our latest analysis for NCSOFT

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 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.

Looking back five years, both NCSOFT's share price and EPS declined; the latter at a rate of 23% per year. In this case, the EPS change is really very close to the share price drop of 23% a year. This suggests that market participants have not changed their view of the company all that much. Rather, the share price has approximately tracked EPS growth.

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

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

A Different Perspective

While the broader market lost about 6.3% in the twelve months, NCSOFT shareholders did even worse, losing 20% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. However, the loss over the last year isn't as bad as the 11% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with NCSOFT , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on South Korean 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.