Grosvenor Capital Management (NASDAQ:GCMG) shareholders have endured a 35% loss from investing in the stock a year ago

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Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market – but in the process, they risk under-performance. That downside risk was realized by Grosvenor Capital Management, L.P. (NASDAQ:GCMG) shareholders over the last year, as the share price declined 37%. That’s disappointing when you consider the market declined 8.4%. However, the longer term returns haven’t been so bad, with the stock down 15% in the last three years. Even worse, it’s down 9.6% in about a month, which isn’t fun at all. We do note, however, that the broader market is down 9.4% in that period, and this may have weighed on the share price.

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.

See our latest analysis for Grosvenor Capital Management

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

During the unfortunate twelve months during which the Grosvenor Capital Management share price fell, it actually saw its earnings per share (EPS) improve by 385%. It’s quite possible that growth expectations may have been unreasonable in the past.

It’s surprising to see the share price fall so much, despite the improved EPS. But we might find some different metrics explain the share price movements better.

Grosvenor Capital Management’s dividend seems healthy to us, so we doubt that the yield is a concern for the market. From what we can see, revenue is pretty flat, so that doesn’t really explain the share price drop. Of course, it could simply be that it simply fell short of the market consensus expectations.

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

earnings-and-revenue-growth

We know that Grosvenor Capital Management has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Grosvenor Capital Management stock, you should check out this free report showing analyst profit forecasts.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, Grosvenor Capital Management’s TSR for the last 1 year was -35%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Grosvenor Capital Management shareholders are down 35% for the year (even including dividends), falling short of the market return. Meanwhile, the broader market slid about 8.4%, likely weighing on the stock. The three-year loss of 4% per year isn’t as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should learn about the 4 warning signs we’ve spotted with Grosvenor Capital Management (including 1 which is a bit unpleasant) .

If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.