Did You Manage To Avoid amaysim Australia's (ASX:AYS) Devastating 83% Share Price Drop?

Simply Wall St

Every investor on earth makes bad calls sometimes. But really bad investments should be rare. So consider, for a moment, the misfortune of amaysim Australia Limited (ASX:AYS) investors who have held the stock for three years as it declined a whopping 83%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. The more recent news is of little comfort, with the share price down 64% in a year. Unhappily, the share price slid 2.8% in the last week.

We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

See our latest analysis for amaysim Australia

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. 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.

amaysim Australia saw its share price decline over the three years in which its EPS also dropped, falling to a loss. This was, in part, due to extraordinary items impacting earnings. Due to the loss, it's not easy to use EPS as a reliable guide to the business. But it's safe to say we'd generally expect the share price to be lower as a result!

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

ASX:AYS Past and Future Earnings, January 24th 2020

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on amaysim Australia's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What about the Total Shareholder Return (TSR)?

We've already covered amaysim Australia's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for amaysim Australia shareholders, and that cash payout explains why its total shareholder loss of 81%, over the last 3 years, isn't as bad as the share price return.

A Different Perspective

Over the last year, amaysim Australia shareholders took a loss of 60%. In contrast the market gained about 26%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 42% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Warren Buffett famously said he likes to 'buy when there is blood on the streets', he also focusses on high quality stocks with solid prospects. 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. Case in point: We've spotted 4 warning signs for amaysim Australia you should be aware of, and 2 of them don't sit too well with us.

amaysim Australia is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

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.

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. Thank you for reading.