The five-year shareholder returns and company earnings persist lower as Continental (ETR:CON) stock falls a further 3.4% in past week

For many, the main point of investing is to generate higher returns than the overall market. But in any portfolio, there will be mixed results between individual stocks. So we wouldn't blame long term Continental Aktiengesellschaft (ETR:CON) shareholders for doubting their decision to hold, with the stock down 54% over a half decade.

Since Continental has shed €404m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Continental

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

During five years of share price growth, Continental moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics may better explain the share price move.

The revenue fall of 1.0% per year for five years is neither good nor terrible. But it's quite possible the market had expected better; a closer look at the revenue trends might explain the pessimism.

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

Continental is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Continental in this interactive graph of future profit estimates.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Continental the TSR over the last 5 years was -42%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 2.5% in the last year, Continental shareholders lost 19% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Continental better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Continental .

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 German 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com