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While not a mind-blowing move, it is good to see that the SMA Solar Technology AG (ETR:S92) share price has gained 11% in the last three months. But that hardly compensates for the shocking decline over the last twelve months. During that time the share price has plummeted like a stone, down 71%. It's not uncommon to see a bounce after a drop like that. The real question is whether the company can turn around its fortunes.
If the past week is anything to go by, investor sentiment for SMA Solar Technology isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
See our latest analysis for SMA Solar Technology
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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Unfortunately SMA Solar Technology reported an EPS drop of 64% for the last year. This proportional reduction in earnings per share isn't far from the 71% decrease in the share price. Given the lower EPS we might have expected investors to lose confidence in the stock, but that doesn't seemed to have happened. Instead, the change in the share price seems to reduction in earnings per share, alone.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how SMA Solar Technology has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling SMA Solar Technology stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
While the broader market gained around 18% in the last year, SMA Solar Technology shareholders lost 70% (even including dividends). 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9% 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. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with SMA Solar Technology (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.