The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it should be a priority to avoid stomach churning catastrophes, wherever possible. We wouldn't blame Ecsponent Limited (JSE:ECS) shareholders if they were still in shock after the stock dropped like a lead balloon, down 81% in just one year. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. Notably, shareholders had a tough run over the longer term, too, with a drop of 58% in the last three years. Furthermore, it's down 50% in about a quarter. That's not much fun for holders.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
View our latest analysis for Ecsponent
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the last year Ecsponent saw its earnings per share drop below zero. Some investors no doubt dumped the stock as a result. We hope for shareholders' sake that the company becomes profitable again soon.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on Ecsponent's earnings, revenue and cash flow.
A Different Perspective
While the broader market gained around 7.7% in the last year, Ecsponent shareholders lost 81%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 22% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Ecsponent has 4 warning signs (and 2 which are significant) we think you should know about.
But note: Ecsponent 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 ZA exchanges.
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.
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. Thank you for reading.