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Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. That downside risk was realized by E2E Networks Limited (NSE:E2E) shareholders over the last year, as the share price declined 46%. That's disappointing when you consider the market returned 1.3%. We wouldn't rush to judgement on E2E Networks because we don't have a long term history to look at. The falls have accelerated recently, with the share price down 11% in the last three months.

See our latest analysis for E2E Networks

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 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, E2E Networks had to report a 75% decline in EPS over the last year. The share price fall of 46% isn't as bad as the reduction in earnings per share. It may have been that the weak EPS was not as bad as some had feared.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It might be well worthwhile taking a look at our free report on E2E Networks's earnings, revenue and cash flow.

A Different Perspective

Given that the market gained 1.3% in the last year, E2E Networks shareholders might be miffed that they lost 46%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 11%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. Before forming an opinion on E2E Networks you might want to consider these 3 valuation metrics.

But note: E2E Networks may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.