The year's worst-performing stocks: what the ranking measures and what it cannot show

The list below sorts Russian stocks by their price change over the year, from the deepest drawdown to the shallowest. It answers exactly the question that was asked and no other: what is measured here is the movement of the quote, not the quality of the business, not how cheap the stock is and not how likely it is to recover. A stock that has fallen is a stock the market now values lower than it did a year ago. Why exactly, the ranking does not say.

What exactly is measured

In substance there is one criterion: the percentage change in price between two points, today's and the one a year before it. The sort is ascending, so the stocks with the worst result come out on top. The composition is recalculated every time the page is served: the starting point only has to shift for the order of the rows to change, which is exactly why the names of the constituents are not given in the text and live only in the list itself.

It matters that the comparison is made in percentages, not in roubles. This puts stocks with different prices and different market capitalisations on an equal footing, and at the same time makes the ranking sensitive to illiquid names, where a wide spread and infrequent trades move the quote more than any real revaluation of the company does. How many trades a stock sees is a separate dimension, and it has a separate analysis of its own: what turnover shows.

Why a price change is not the whole return

The price does not include payouts. A stock on which the holder received dividends earned its owner more than its quote shows, while a stock with no payouts earned exactly as much as can be seen in the price. Two results that look identical on the chart may turn out to be different in money terms.

A separate source of distortion is the dividend gap. After the record date the quote opens lower, and in series built on the clean price a large payout looks like a fall. Exactly how gaps and stock splits are accounted for in a particular series depends on how that series is constructed, and the brief for this piece contains no such clarification, so it is more honest to say it plainly: check the payout history separately, through the dividends section, rather than filling in the picture from the percentage change.

What cannot be concluded from this ranking

It cannot be concluded that a stock has become cheap. "Has fallen" and "is undervalued" are different statements: the first is about the path of the price, the second about the relationship between the price and the fundamentals of the business. Profit and revenue may have fallen faster than the quote, in which case the stock is more expensive after the fall than it was before. This distinction is the basis of an entire approach to stock selection: see growth stocks and value stocks and the term value stocks.

It cannot be concluded that the fall will continue or come to an end. A past price change is a fact about the past; it holds no promise of future returns.

It cannot be concluded that a low price per share makes a stock attractive. The price of a single share depends on how many parts the capital is divided into, and by itself says nothing about the company; this is covered in a separate piece and under the term par value of a share.

And it cannot be concluded that the list is complete. A stock in which trading was suspended, or which has left the market, may not make it into the sample at all: its fall has not been measured, because there was nothing to measure.

What lies behind the size of the fall

The causes of a deep drawdown can differ fundamentally in nature, and the ranking does not tell them apart:

• A deterioration in the business itself: shrinking revenue, a loss, a heavy debt burden. This is to be found in the financial statements, in the reports section.
• A corporate decision: a secondary share issue that dilutes holders' stakes, the cancellation of payouts, a change in the ownership structure. The terms issued shares and shares outstanding are useful here.
• External conditions: the interest rate, the exchange rate, prices for the company's output, regulatory restrictions. The company may be the same while its valuation is different.
• A technical cause: the gap already mentioned, a split, low liquidity.

The first and second groups are about the company. The third is about the market. The fourth is not about value at all. Until it is clear which group a particular row belongs to, the fall means nothing.

How to read the list below

Step 1. Look at the size of the drawdown as the size of the question, not as the answer. A deep fall is a reason to find out the cause.

Step 2. Open the stock's page from the list of stocks and check the price performance against the financial statements: did the price fall together with the financial results or separately from them.

Step 3. Check whether there were corporate events that explain the slump mechanically, using the events calendar and the news.

Step 4. If the stock is still of interest after that, run it through the checklist before buying a stock. A ranking of fallen stocks is the way into the work, not its result.

This list is best treated as a filter for attention: it quickly shows where the most has changed over the year and saves time on the search. It does not replace a decision and cannot replace one, because all it takes as input is the price.