ASX (ASX:ASX) investors are sitting on a loss of 23% if they invested three years ago

Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term ASX Limited (ASX:ASX) shareholders, since the share price is down 30% in the last three years, falling well short of the market return of around 32%. The falls have accelerated recently, with the share price down 10% in the last three months. Of course, this share price action may well have been influenced by the 4.0% decline in the broader market, throughout the period.

Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.

Check out our latest analysis for ASX

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

ASX saw its EPS decline at a compound rate of 14% per year, over the last three years. This fall in the EPS is worse than the 11% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of ASX, it has a TSR of -23% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Investors in ASX had a tough year, with a total loss of 19% (including dividends), against a market gain of about 7.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 2% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand ASX better, we need to consider many other factors. For example, we've discovered 2 warning signs for ASX (1 can't be ignored!) that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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