Did Changing Sentiment Drive Rafako’s (WSE:RFK) Share Price Down A Painful 71%?

Rafako S.A. (WSE:RFK) shareholders should be happy to see the share price up 24% in the last month. Meanwhile over the last three years the stock has dropped hard. Indeed, the share price is down a tragic 71% in the last three years. So it’s is really good to see an improvement. The rise has some hopeful, but turnarounds are often precarious.

View our latest analysis for Rafako

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).

Rafako saw its share price decline over the three years in which its EPS also dropped, falling to a loss. Extraordinary items contributed to this situation. Due to the loss, it’s not easy to use EPS as a reliable guide to the business. But it’s safe to say we’d generally expect the share price to be lower as a result!

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

WSE:RFK Past and Future Earnings, March 13th 2019
WSE:RFK Past and Future Earnings, March 13th 2019

It might be well worthwhile taking a look at our free report on Rafako’s earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

Investors should note that there’s a difference between Rafako’s total shareholder return (TSR) and its share price change, which we’ve covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings. We note that Rafako’s TSR, at -69% is higher than its share price rise of -71%. When you consider it hasn’t been paying a dividend, this data suggests shareholders may have had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

While the broader market lost about 3.3% in the twelve months, Rafako shareholders did even worse, losing 53%. 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 14% over the last half decade. 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. You could get a better understanding of Rafako’s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

Of course Rafako may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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