Knorr-Bremse (ETR:KBX) stock falls 8.9% in past week as three-year earnings and shareholder returns continue downward trend

While not a mind-blowing move, it is good to see that the Knorr-Bremse AG (ETR:KBX) share price has gained 12% in the last three months. But that doesn't change the fact that the returns over the last three years have been less than pleasing. In fact, the share price is down 27% in the last three years, falling well short of the market return.

With the stock having lost 8.9% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

View our latest analysis for Knorr-Bremse

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Knorr-Bremse saw its EPS decline at a compound rate of 2.7% per year, over the last three years. This reduction in EPS is slower than the 10% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy.

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

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

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Knorr-Bremse the TSR over the last 3 years was -23%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

The last twelve months weren't great for Knorr-Bremse shares, which performed worse than the market, costing holders 16%, including dividends. Meanwhile, the broader market slid about 12%, likely weighing on the stock. The three-year loss of 7% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. 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. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Knorr-Bremse (of which 1 makes us a bit uncomfortable!) you should know about.

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.