These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But if you pick the right individual stocks, you could make more -- or less -- than that. While the Echo Investment S.A. (WSE:ECH) share price is down 40% over half a decade, the total return to shareholders (which includes dividends) was 2.8%. And that total return actually beats the market decline of 5.5%. The falls have accelerated recently, with the share price down 21% in the last three months. Of course, this share price action may well have been influenced by the 16% decline in the broader market, throughout the period.
After losing 13% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
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.
Looking back five years, both Echo Investment's share price and EPS declined; the latter at a rate of 29% per year. The share price decline of 10% per year isn't as bad as the EPS decline. So the market may previously have expected a drop, or else it expects the situation will improve.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Echo Investment the TSR over the last 5 years was 2.8%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We regret to report that Echo Investment shareholders are down 12% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 5.8%. 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 0.5%, 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. 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. Take risks, for example - Echo Investment has 5 warning signs (and 1 which is significant) we think you should know about.
But note: Echo Investment may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on PL exchanges.
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.