Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in J. Smart & Co. (Contractors) PLC (LON:SMJ) have tasted that bitter downside in the last year, as the share price dropped 24%. That falls noticeably short of the market decline of around 1.3%. On the other hand, the stock is actually up 7.9% over three years. It's down 26% in about a quarter. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
See our latest analysis for J. Smart (Contractors)
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Unfortunately J. Smart (Contractors) reported an EPS drop of 97% for the last year. This was, in part, due to extraordinary items impacting earnings. The share price fall of 24% isn't as bad as the reduction in earnings per share. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult. With a P/E ratio of 243.73, it's fair to say the market sees an EPS rebound on the cards.
The graphic below depicts how EPS has changed over time (unveil 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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
J. Smart (Contractors) shareholders are down 22% for the year (even including dividends), but the market itself is up 1.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 5% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 - J. Smart (Contractors) has 5 warning signs (and 1 which is significant) we think you should know about.