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It's easy to match the overall market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Südwestdeutsche Salzwerke AG (FRA:SSH) shareholders over the last year, as the share price declined 27%. That's disappointing when you consider the market returned 6.3%. However, the longer term returns haven't been so bad, with the stock down 2.2% in the last three years. Shareholders have had an even rougher run lately, with the share price down 18% in the last 90 days.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
See our latest analysis for Südwestdeutsche Salzwerke
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, Südwestdeutsche Salzwerke had to report a 98% decline in EPS over the last year. Readers should not this outcome was influenced by the impact of extraordinary items on EPS. This fall in the EPS is significantly worse than the 27% the share price fall. It may have been that the weak EPS was not as bad as some had feared. Indeed, with a P/E ratio of 786.91 there is obviously some real optimism that earnings will bounce back.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
While the broader market gained around 6.3% in the last year, Südwestdeutsche Salzwerke shareholders lost 26% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 1.4%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should learn about the 4 warning signs we've spotted with Südwestdeutsche Salzwerke (including 1 which is a bit concerning) .