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Every investor on earth makes bad calls sometimes. But really bad investments should be rare. So consider, for a moment, the misfortune of Fevertree Drinks PLC (LON:FEVR) investors who have held the stock for three years as it declined a whopping 73%. That would be a disturbing experience. The more recent news is of little comfort, with the share price down 31% in a year. Furthermore, it's down 13% in about a quarter. That's not much fun for holders.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
See our latest analysis for Fevertree Drinks
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).
Fevertree Drinks saw its EPS decline at a compound rate of 21% per year, over the last three years. The share price decline of 35% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
While the broader market gained around 13% in the last year, Fevertree Drinks shareholders lost 30% (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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% 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. It's always interesting to track share price performance over the longer term. But to understand Fevertree Drinks better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Fevertree Drinks you should know about.