For many, the main point of investing is to generate higher returns than the overall market. But even the best stock picker will only win with some selections. So we wouldn't blame long term Zardoya Otis, S.A. (BME:ZOT) shareholders for doubting their decision to hold, with the stock down 39% over a half decade. And some of the more recent buyers are probably worried, too, with the stock falling 24% in the last year. Shareholders have had an even rougher run lately, with the share price down 10% in the last 90 days. Of course, this share price action may well have been influenced by the 4.1% decline in the broader market, throughout the period.
Check out our latest analysis for Zardoya Otis
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 five years over which the share price declined, Zardoya Otis's earnings per share (EPS) dropped by 0.6% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 9.4% per year, over the period. This implies that the market was previously too optimistic about the stock.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Zardoya Otis, it has a TSR of -29% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market lost about 4.6% in the twelve months, Zardoya Otis shareholders did even worse, losing 21% (even including dividends). 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 6.6% per year over five years. 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. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.