Long term investing is the way to go, but that doesn’t mean you should hold every stock forever. We really hate to see fellow investors lose their hard-earned money. For example, we sympathize with anyone who was caught holding United Natural Foods, Inc. (NYSE:UNFI) during the five years that saw its share price drop a whopping 93%. And it’s not just long term holders hurting, because the stock is down 58% in the last year. Even worse, it’s down 25% in about a month, which isn’t fun at all. However, we note the price may have been impacted by the broader market, which is down 17% in the same time period.

We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

In the last half decade United Natural Foods saw its share price fall as its EPS declined below zero. Since the company has fallen to a loss making position, it’s hard to compare the change in EPS with the share price change. However, we can say we’d expect to see a falling share price in this scenario.

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

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money.

A Different Perspective

While the broader market lost about 1.1% in the twelve months, United Natural Foods shareholders did even worse, losing 58%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 41% over the last half decade. 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. 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.