Kansai Paint (TSE:4613) shareholders have lost 22% over 1 year, earnings decline likely the culprit

The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Kansai Paint Co., Ltd. (TSE:4613) shareholders over the last year, as the share price declined 24%. That's disappointing when you consider the market returned 3.7%. On the bright side, the stock is actually up 11% in the last three years. The falls have accelerated recently, with the share price down 13% in the last three months.

Since Kansai Paint has shed JP¥14b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Unfortunately Kansai Paint reported an EPS drop of 32% for the last year. This fall in the EPS is significantly worse than the 24% the share price fall. It may have been that the weak EPS was not as bad as some had feared.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

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

A Different Perspective

While the broader market gained around 3.7% in the last year, Kansai Paint shareholders lost 22% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.9% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should learn about the 4 warning signs we've spotted with Kansai Paint (including 1 which makes us a bit uncomfortable) .

We will like Kansai Paint better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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