Did You Manage To Avoid MMJ Group Holdings's (ASX:MMJ) 19% Share Price Drop?

Simply Wall St

Simply Wall St.October 2, 2019

The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in MMJ Group Holdings Limited (ASX:MMJ) have tasted that bitter downside in the last year, as the share price dropped 19%. That's well bellow the market return of 12%. However, the longer term returns haven't been so bad, with the stock down 4.0% in the last three years.

See our latest analysis for MMJ Group Holdings

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the unfortunate twelve months during which the MMJ Group Holdings share price fell, it actually saw its earnings per share (EPS) improve by 292%. Of course, the situation might betray previous over-optimism about growth.

The divergence between the EPS and the share price is quite notable, during the year. So it's easy to justify a look at some other metrics.

Revenue was fairly steady year on year, which isn't usually such a bad thing. However, it is certainly possible the market was expecting an uptick in revenue, and that the share price fall reflects that disappointment.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

ASX:MMJ Income Statement, October 1st 2019

This free interactive report on MMJ Group Holdings's balance sheet strength is a great place to start, if you want to investigate the stock further.