Profits rise at Ramco Cements (NSE:RAMCOCEM) but shareholders still don’t like its outlook

Passive investing in an index fund is a good way to ensure that your own returns roughly match the broader market. Active investors aim to buy stocks that significantly outperform the market – but in the process, they risk underperforming. This downside risk was materialized by Ramco Cements Limited (NSE: RAMCOCEM) shareholders over the past year, with the share price down 38%. This contrasts poorly with the market return of 4.0%. Longer-term shareholders have not suffered as much, as the stock has fallen a comparatively less painful 22% in three years. Shareholders have had an even tougher race lately, with the share price falling 16% in the past 90 days. We note that the company released results quite recently; and the market is hardly thrilled. You can view the latest figures in our corporate report.

Given that the past week has been tough for shareholders, let’s take a look at the fundamentals and see what we can learn.

Check out our latest analysis for Ramco Cements

To paraphrase Benjamin Graham: in the short term, the market is a voting machine, but in the long term, it is a weighing machine. One way to look at how market sentiment has changed over time is to look at the interaction between a company’s stock price and its earnings per share (EPS).

In the unfortunate twelve months in which Ramco Cements’ share price fell, it did indeed see its earnings per share (EPS) improve by 14%. It is entirely possible that growth expectations have been unreasonable in the past.

It’s fair to say that the stock price doesn’t seem to reflect EPS growth. It is therefore easy to justify a look at other measures.

With a low yield of 0.5%, we doubt the dividend will influence the stock price much. Ramco Cements’ sales actually increased by 13% compared to last year. Since the fundamentals do not easily explain the stock price drop, there could be an opportunity if the market has overreacted.

The company’s revenues and profits (over time) are shown in the image below (click to see exact figures).

NSEI: RAMCOCEM Growth in results and revenues June 13, 2022

We know that Ramco Cements has recently improved its results, but what does the future hold? You can see what analysts are predicting for Ramco Cements in this interactive graph of future profit estimates.

A different perspective

Ramco Cements shareholders are down 38% on the year (even including dividends), but the market itself is up 4.0%. 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 point to unresolved challenges, given that it was worse than the 2% annualized loss over the past half-decade. Generally speaking, long-term stock price weakness can be a bad sign, although contrarian investors may want to seek out the stock in hopes of a turnaround. While it’s worth considering the various impacts that market conditions can have on the stock price, there are other, even more important factors. Take for example the ubiquitous specter of investment risk. We have identified 4 warning signs with Ramco Cements, and understanding them should be part of your investment process.

If you’re like me, then you not want to miss this free list of growing companies insiders are buying.

Please note that the market returns quoted in this article reflect the average market-weighted returns of stocks currently trading on IN exchanges.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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