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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. Unfortunately the Base Resources Limited (ASX:BSE) share price slid 20% over twelve months. That's disappointing when you consider the market returned 18%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 6.8% in three years. Shareholders have had an even rougher run lately, with the share price down 18% in the last 90 days.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Unfortunately Base Resources reported an EPS drop of 7.4% for the last year. This reduction in EPS is not as bad as the 20% share price fall. So it seems the market was too confident about the business, a year ago. The P/E ratio of 4.15 also points to the negative market sentiment.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It is of course excellent to see how Base Resources has grown profits over the years, but the future is more important for shareholders. This free interactive report on Base Resources's balance sheet strength is a great place to start, if you want to investigate the stock further.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Base Resources's total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. We note that Base Resources's TSR, at -20% is higher than its share price return of -20%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.
A Different Perspective
Base Resources shareholders are down 20% for the year, but the market itself is up 18%. 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 2.0% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. Before spending more time on Base Resources it might be wise to click here to see if insiders have been buying or selling shares.
But note: Base Resources 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 AU 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 firstname.lastname@example.org. 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.