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Adbri (ASX:ABC) stock falls 20% in past week as five-year earnings and shareholder returns continue downward trend

Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. For example, we sympathize with anyone who was caught holding Adbri Limited (ASX:ABC) during the five years that saw its share price drop a whopping 76%. And it's not just long term holders hurting, because the stock is down 54% in the last year. The falls have accelerated recently, with the share price down 40% in the last three months.

Since Adbri has shed AU$245m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for Adbri

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

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During the five years over which the share price declined, Adbri's earnings per share (EPS) dropped by 9.8% each year. This reduction in EPS is less than the 25% annual reduction in the share price. This implies that the market is more cautious about the business these days. The low P/E ratio of 8.84 further reflects this reticence.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
earnings-per-share-growth

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

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Adbri's TSR for the last 5 years was -71%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market lost about 6.2% in the twelve months, Adbri shareholders did even worse, losing 51% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 11% over the last half decade. We realise that Baron Rothschild 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 business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Adbri , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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