Sime Darby Berhad (KLSE:SIME) earnings and shareholder returns have been trending downwards for the last year, but the stock rallies 5.4% this past week

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. Investors in Sime Darby Berhad (KLSE:SIME) have tasted that bitter downside in the last year, as the share price dropped 23%. That's well below the market decline of 6.2%. At least the damage isn't so bad if you look at the last three years, since the stock is down 11% in that time. But it's up 5.4% in the last week.

Although the past week has been more reassuring for shareholders, they're still in the red over the last year, so let's see if the underlying business has been responsible for the decline.

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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.

Unfortunately Sime Darby Berhad reported an EPS drop of 8.3% for the last year. The share price decline of 23% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago. The less favorable sentiment is reflected in its current P/E ratio of 9.55.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It might be well worthwhile taking a look at our free report on Sime Darby Berhad's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Sime Darby Berhad, it has a TSR of -18% for the last 1 year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 6.2% in the twelve months, Sime Darby Berhad shareholders did even worse, losing 18% (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. Longer term investors wouldn't be so upset, since they would have made 9%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Sime Darby Berhad better, we need to consider many other factors. For instance, we've identified 2 warning signs for Sime Darby Berhad that you should be aware of.

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