The five-year loss for Stadler Rail (VTX:SRAIL) shareholders likely driven by its shrinking earnings

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there will be mixed results between individual stocks. At this point some shareholders may be questioning their investment in Stadler Rail AG (VTX:SRAIL), since the last five years saw the share price fall 50%.

On a more encouraging note the company has added CHF84m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

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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 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).

Looking back five years, both Stadler Rail's share price and EPS declined; the latter at a rate of 23% per year. The share price decline of 13% per year isn't as bad as the EPS decline. So investors might expect EPS to bounce back -- or they may have previously foreseen the EPS decline. The high P/E ratio of 63.41 suggests that shareholders believe earnings will grow in the years ahead.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Stadler Rail the TSR over the last 5 years was -44%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Stadler Rail shareholders are up 1.6% for the year (even including dividends). But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 8% endured over half a decade. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand Stadler Rail better, we need to consider many other factors. For instance, we've identified 3 warning signs for Stadler Rail (2 are a bit concerning) that you should be aware of.

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