Southwest Airlines (NYSE:LUV shareholders incur further losses as stock declines 3.4% this week, taking three-year losses to 52%

Investing in stocks inevitably means buying into some companies that perform poorly. But the long term shareholders of Southwest Airlines Co. (NYSE:LUV) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 53% drop in the share price over that period.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

Check out our latest analysis for Southwest Airlines

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

Southwest Airlines became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. So it's worth looking at other metrics to try to understand the share price move.

We note that, in three years, revenue has actually grown at a 37% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Southwest Airlines more closely, as sometimes stocks fall unfairly. This could present an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Southwest Airlines is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Southwest Airlines stock, you should check out this free report showing analyst consensus estimates for future profits.

A Different Perspective

While the broader market gained around 22% in the last year, Southwest Airlines shareholders lost 11% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 8% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 2 warning signs for Southwest Airlines you should be aware of, and 1 of them is significant.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.