Despite delivering investors losses of 19% over the past 5 years, Knorr-Bremse (ETR:KBX) has been growing its earnings

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. At this point some shareholders may be questioning their investment in Knorr-Bremse AG (ETR:KBX), since the last five years saw the share price fall 28%. Furthermore, it's down 11% in about a quarter. That's not much fun for holders.

While the last five years has been tough for Knorr-Bremse shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

Check out our latest analysis for Knorr-Bremse

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

While the share price declined over five years, Knorr-Bremse actually managed to increase EPS by an average of 1.4% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.

Based on these numbers, we'd venture that the market may have been over-optimistic about forecast growth, half a decade ago. Looking to other metrics might better explain the share price change.

Revenue is actually up 4.9% over the time period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be 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).

Knorr-Bremse is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Knorr-Bremse the TSR over the last 5 years was -19%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Knorr-Bremse shareholders have received a total shareholder return of 29% over the last year. That's including the dividend. Notably the five-year annualised TSR loss of 4% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Knorr-Bremse , and understanding them should be part of your investment process.

Of course Knorr-Bremse may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.