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Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. For example, the Sensata Technologies Holding plc (NYSE:ST) share price is down 22% in the last year. That contrasts poorly with the market decline of 9.8%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 3.8% in three years. The share price has dropped 24% in three months. But this could be related to the weak market, which is down 16% in the same period.
After losing 5.6% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.
Even though the Sensata Technologies Holding share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.
It's surprising to see the share price fall so much, despite the improved EPS. So it's well worth checking out some other metrics, too.
Given the yield is quite low, at 1.0%, we doubt the dividend can shed much light on the share price. Sensata Technologies Holding managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Sensata Technologies Holding is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Sensata Technologies Holding will earn in the future (free analyst consensus estimates)
A Different Perspective
While the broader market lost about 9.8% in the twelve months, Sensata Technologies Holding shareholders did even worse, losing 22% (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. On the bright side, long term shareholders have made money, with a gain of 1.8% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Take risks, for example - Sensata Technologies Holding has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.
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 US 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.