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Taking the occasional loss comes part and parcel with investing on the stock market. And unfortunately for SMA Solar Technology AG (ETR:S92) shareholders, the stock is a lot lower today than it was a year ago. To wit the share price is down 70% in that time. Even if you look out three years, the returns are still disappointing, with the share price down49% in that time. Shareholders have had an even rougher run lately, with the share price down 35% in the last 90 days.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for SMA Solar Technology
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Unhappily, SMA Solar Technology had to report a 2.1% decline in EPS over the last year. The share price decline of 70% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago. The P/E ratio of 3.98 also points to the negative market sentiment.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that SMA Solar Technology has improved its bottom line over the last three years, but what does the future have in store? 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
SMA Solar Technology shareholders are down 70% for the year (even including dividends), but the market itself is up 9.0%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% per year over five years. 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. For example, we've discovered 3 warning signs for SMA Solar Technology (2 make us uncomfortable!) that you should be aware of before investing here.