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For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term GR Engineering Services Limited (ASX:GNG) shareholders, since the share price is down 40% in the last three years, falling well short of the market return of around 41%. And more recent buyers are having a tough time too, with a drop of 36% in the last year. The falls have accelerated recently, with the share price down 12% in the last three months.
See our latest analysis for GR Engineering Services
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.
GR Engineering Services saw its EPS decline at a compound rate of 31% per year, over the last three years. This fall in the EPS is worse than the 16% compound annual share price fall. So the market may not be too worried about the EPS figure, at the moment -- or it may have previously priced some of the drop in.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
This free interactive report on GR Engineering Services's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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 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 GR Engineering Services, it has a TSR of -29% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Investors in GR Engineering Services had a tough year, with a total loss of 32% (including dividends) , against a market gain of about 25%. 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. On the bright side, long term shareholders have made money, with a gain of 8.5% per year over half a decade. 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. Before forming an opinion on GR Engineering Services you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.