Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in SIT S.p.A. (BIT:SIT) have tasted that bitter downside in the last year, as the share price dropped 51%. That's disappointing when you consider the market returned -19%. We wouldn't rush to judgement on SIT because we don't have a long term history to look at. Shareholders have had an even rougher run lately, with the share price down 36% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 27% in the same timeframe.
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.
The last year saw SIT's EPS really take off. The rate of growth may not be sustainable, but it is still really positive. As a result, we're surprised to see the weak share price. So it's worth taking a look at some other metrics.
SIT's dividend seems healthy to us, so we doubt that the yield is a concern for the market. The revenue trend doesn't seem to explain why the share price is down. Unless, of course, the market was expecting a revenue uptick.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
If you are thinking of buying or selling SIT stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
We doubt SIT shareholders are happy with the loss of 49% over twelve months (even including dividends) . That falls short of the market, which lost 19%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. With the stock down 36% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. It's always interesting to track share price performance over the longer term. But to understand SIT better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with SIT (at least 1 which can't be ignored) , and understanding them should be part of your investment process.
But note: SIT may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IT exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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