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. Unfortunately the Golden Energy and Resources Limited (SGX:AUE) share price slid 32% over twelve months. That's well bellow the market return of 2.5%. Golden Energy and Resources may have better days ahead, of course; we've only looked at a one year period. Furthermore, it's down 16% in about a quarter. That's not much fun for holders.
See our latest analysis for Golden Energy and Resources
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.
Unhappily, Golden Energy and Resources had to report a 75% decline in EPS over the last year. This fall in the EPS is significantly worse than the 32% the share price fall. 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 graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
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). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Golden Energy and Resources's TSR for the last year was -27%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While Golden Energy and Resources shareholders are down 27% for the year (even including dividends), the market itself is up 2.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 16%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Importantly, we haven't analysed Golden Energy and Resources's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.