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Alfen N.V. (AMS:ALFEN) shareholders might be concerned after seeing the share price drop 21% in the last quarter. But that doesn't change the fact that the returns over the last five years have been very strong. Indeed, the share price is up an impressive 237% in that time. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. Ultimately business performance will determine whether the stock price continues the positive long term trend. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 50% drop, in the last year.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
See our latest analysis for Alfen
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.
During five years of share price growth, Alfen achieved compound earnings per share (EPS) growth of 84% per year. This EPS growth is higher than the 27% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Alfen has grown profits over the years, but the future is more important for shareholders. This free interactive report on Alfen's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Investors in Alfen had a tough year, with a total loss of 50%, against a market gain of about 6.9%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 27%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Even so, be aware that Alfen is showing 3 warning signs in our investment analysis , you should know about...