Did Changing Sentiment Drive Grasim Industries's (NSE:GRASIM) Share Price Down By 26%?
For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Grasim Industries Limited (NSE:GRASIM) shareholders, since the share price is down 26% in the last three years, falling well short of the market return of around 21%. Furthermore, it's down 18% in about a quarter. That's not much fun for holders.
Check out our latest analysis for Grasim Industries
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. 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.
During the three years that the share price fell, Grasim Industries's earnings per share (EPS) dropped by 21% each year. In comparison the 9.7% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It might be well worthwhile taking a look at our free report on Grasim Industries's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We've already covered Grasim Industries's share price action, but we should also mention its 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. Its history of dividend payouts mean that Grasim Industries's TSR, which was a 25% drop over the last 3 years, was not as bad as the share price return.
A Different Perspective
While the broader market gained around 4.3% in the last year, Grasim Industries shareholders lost 17% (even including dividends) . 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. Longer term investors wouldn't be so upset, since they would have made 1.8%, 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. Before spending more time on Grasim Industries it might be wise to click here to see if insiders have been buying or selling shares.
Of course Grasim Industries may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
