Imagine Owning NORMA Group (ETR:NOEJ) And Wondering If The 41% Share Price Slide Is Justified

Simply Wall St

The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in NORMA Group SE (ETR:NOEJ) have tasted that bitter downside in the last year, as the share price dropped 41%. That contrasts poorly with the market return of 1.8%. Even if you look out three years, the returns are still disappointing, with the share price down (the share price is down 33%) in that time. Shareholders have had an even rougher run lately, with the share price down 12% in the last 90 days.

Check out our latest analysis for NORMA Group

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Unhappily, NORMA Group had to report a 34% decline in EPS over the last year. This proportional reduction in earnings per share isn't far from the 41% decrease in the share price. Given the lower EPS we might have expected investors to lose confidence in the stock, but that doesn't seemed to have happened. Rather, the share price has approximately tracked EPS growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

XTRA:NOEJ Past and Future Earnings, October 10th 2019

Dive deeper into NORMA Group's key metrics by checking this interactive graph of NORMA Group's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

We've already covered NORMA Group'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. Its history of dividend payouts mean that NORMA Group's TSR, which was a 39% drop over the last year, was not as bad as the share price return.

A Different Perspective

Investors in NORMA Group had a tough year, with a total loss of 39% (including dividends) , against a market gain of about 1.8%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.6% over the last half decade. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Before forming an opinion on NORMA Group you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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