It’s easy to match the overall 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. For example, the Bayer Aktiengesellschaft (ETR:BAYN) share price is down 49% in the last year. That’s disappointing when you consider the market returned 8.1%. To make matters worse, the returns over three years have also been really disappointing (the share price is 47% lower than three years ago).
With the stock having lost 3.3% in the past week, it’s worth taking a look at business performance and seeing if there’s any red flags.
View our latest analysis for Bayer
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. 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.
Bayer fell to a loss making position during the year. Buyers no doubt think it’s a temporary situation, but those with a nose for quality have low tolerance for losses. Of course, if the company can turn the situation around, investors will likely profit.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Bayer has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
Bayer shareholders are down 49% for the year (even including dividends), but the market itself is up 8.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 7% per year over five years. 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. It’s always interesting to track share price performance over the longer term. But to understand Bayer better, we need to consider many other factors. Even so, be aware that Bayer is showing 1 warning sign in our investment analysis , you should know about…
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on German exchanges.
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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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