If You Had Bought Pick n Pay Stores' (JSE:PIK) Shares A Year Ago You Would Be Down 23%

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Pick n Pay Stores Limited (JSE:PIK) shareholders over the last year, as the share price declined 23%. That's disappointing when you consider the market declined 2.7%. Zooming out, the stock is down 21% in the last three years.

View our latest analysis for Pick n Pay Stores

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Unhappily, Pick n Pay Stores had to report a 33% decline in EPS over the last year. The share price fall of 23% isn't as bad as the reduction in earnings per share. So the market may not be too worried about the EPS figure, at the moment -- or it may have expected earnings to drop faster.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Pick n Pay Stores' key metrics by checking this interactive graph of Pick n Pay Stores'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. We note that for Pick n Pay Stores the TSR over the last year was -20%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 2.7% in the last year, Pick n Pay Stores shareholders lost 20% (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 1.5% 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. It's always interesting to track share price performance over the longer term. But to understand Pick n Pay Stores better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Pick n Pay Stores you should be aware of, and 1 of them shouldn't be ignored.

Of course Pick n Pay Stores 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. 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.
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