As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Kumba Iron Ore Limited (JSE:KIO) shareholders have had that experience, with the share price dropping 42% in three years, versus a market return of about 28%. The falls have accelerated recently, with the share price down 32% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
With the stock having lost 7.0% 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 Kumba Iron Ore
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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the three years that the share price fell, Kumba Iron Ore's earnings per share (EPS) dropped by 19% each year. This change in EPS is reasonably close to the 16% average annual decrease in the share price. So it seems that investor expectations of the company are staying pretty steady, despite the disappointment. Rather, the share price has approximately tracked EPS growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
