While shareholders of Dis-Chem Pharmacies (JSE:DCP) are in the red over the last year, underlying earnings have actually grown

It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. For example, the Dis-Chem Pharmacies Limited (JSE:DCP) share price is down 19% in the last year. That contrasts poorly with the market decline of 3.8%. On the bright side, the stock is actually up 18% in the last three years.

While the stock has risen 3.5% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

Check out our latest analysis for Dis-Chem Pharmacies

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Even though the Dis-Chem Pharmacies share price is down over the year, its EPS actually improved. It's quite possible that growth expectations may have been unreasonable in the past.

It's surprising to see the share price fall so much, despite the improved EPS. But we might find some different metrics explain the share price movements better.

With a low yield of 1.8% we doubt that the dividend influences the share price much. Dis-Chem Pharmacies' revenue is actually up 12% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We know that Dis-Chem Pharmacies has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Dis-Chem Pharmacies will earn in the future (free profit forecasts).

A Different Perspective

While the broader market gained around 3.8% in the last year, Dis-Chem Pharmacies shareholders lost 18% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 2% per year over five years. We realise that Baron Rothschild 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 business. If you would like to research Dis-Chem Pharmacies in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

Of course Dis-Chem Pharmacies 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 ZA 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.