As every investor would know, not every swing hits the sweet spot. But really bad investments should be rare. So spare a thought for the long term shareholders of AfroCentric Investment Corporation Limited (JSE:ACT); the share price is down a whopping 72% in the last three years. That’d be enough to cause even the strongest minds some disquiet. And over the last year the share price fell 30%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 20% in the last three months.

Now let’s have a look at the company’s fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

AfroCentric Investment saw its share price decline over the three years in which its EPS also dropped, falling to a loss. This was, in part, due to extraordinary items impacting earnings. Since the company has fallen to a loss making position, it’s hard to compare the change in EPS with the share price change. But it’s safe to say we’d generally expect the share price to be lower as a result!

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

This free interactive report on AfroCentric Investment’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for AfroCentric Investment the TSR over the last 3 years was -70%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

While the broader market gained around 27% in the last year, AfroCentric Investment shareholders lost 27% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 9% per year over five years. We realise that Baron Rothschild has said investors should “buy when there is blood on the streets”, but we caution that investors should first be sure they are buying a high quality business. 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. Case in point: We’ve spotted 4 warning signs for AfroCentric Investment you should be aware of, and 3 of them don’t sit too well with us.