In order to justify the effort of selecting individual stocks, it’s worth striving to beat the returns from a market index fund. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term BASF SE (ETR:BAS) shareholders have had that experience, with the share price dropping 12% in three years, versus a market return of about 28%. In the last ninety days we’ve seen the share price slide 13%. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.

Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they’ve been consistent with returns.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).

BASF saw its EPS decline at a compound rate of 47% per year, over the last three years. In comparison the 4% compound annual share price decline isn’t as bad as the EPS drop-off. So the market may not be too worried about the EPS figure, at the moment — or it may have previously priced some of the drop in. This positive sentiment is also reflected in the generous P/E ratio of 52.75.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that BASF has improved its bottom line lately, but is it going to grow revenue? If you’re interested, you could check this free report showing consensus revenue forecasts.

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for BASF the TSR over the last 3 years was 6.5%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!