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Statistically speaking, long term investing is a profitable endeavour. But along the way some stocks are going to perform badly. To wit, the Gujarat Mineral Development Corporation Limited (NSE:GMDCLTD) share price managed to fall 59% over five long years. That's an unpleasant experience for long term holders. And we doubt long term believers are the only worried holders, since the stock price has declined 27% over the last twelve months. On the other hand the share price has bounced 9.6% over the last week.
View our latest analysis for Gujarat Mineral Development
There is no denying that markets are sometimes efficient, but prices do not always reflect 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).
During the five years over which the share price declined, Gujarat Mineral Development's earnings per share (EPS) dropped by 13% each year. This reduction in EPS is less than the 16% annual reduction in the share price. This implies that the market was previously too optimistic about the stock. The low P/E ratio of 9.17 further reflects this reticence.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
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 Gujarat Mineral Development'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. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Gujarat Mineral Development, it has a TSR of -52% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Gujarat Mineral Development shareholders are down 25% for the year (even including dividends) , but the market itself is up 9.5%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. 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. 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. Importantly, we haven't analysed Gujarat Mineral Development's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.