Optimism around Gesco (ETR:GSC1) delivering new earnings growth may be shrinking as stock declines 16% this past week

Investors can approximate the average market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Unfortunately the Gesco SE (ETR:GSC1) share price slid 39% over twelve months. That's well below the market return of 3.7%. To make matters worse, the returns over three years have also been really disappointing (the share price is 36% lower than three years ago). Shareholders have had an even rougher run lately, with the share price down 26% in the last 90 days.

Since Gesco has shed €29m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for Gesco

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Gesco had to report a 50% decline in EPS over the last year. The share price fall of 39% isn't as bad as the reduction in earnings per share. So the market may not be too worried about the EPS figure, at the moment -- or it may have expected earnings to drop faster.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

Dive deeper into Gesco's key metrics by checking this interactive graph of Gesco's earnings, revenue and cash flow.

A Different Perspective

Investors in Gesco had a tough year, with a total loss of 38% (including dividends), against a market gain of about 3.7%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for Gesco that you should be aware of before investing here.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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