Grenke's (ETR:GLJ) earnings have declined over five years, contributing to shareholders 80% loss

Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. Imagine if you held Grenke AG (ETR:GLJ) for half a decade as the share price tanked 81%. We also note that the stock has performed poorly over the last year, with the share price down 27%. On the other hand the share price has bounced 7.8% over the last week. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

While the stock has risen 7.8% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

View our latest analysis for Grenke

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 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).

During the five years over which the share price declined, Grenke's earnings per share (EPS) dropped by 9.8% each year. This reduction in EPS is less than the 29% annual reduction in the share price. This implies that the market is more cautious about the business these days. The low P/E ratio of 10.34 further reflects this reticence.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

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

A Different Perspective

Investors in Grenke had a tough year, with a total loss of 26% (including dividends), against a market gain of about 23%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 12% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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. Case in point: We've spotted 2 warning signs for Grenke you should be aware of, and 1 of them doesn't sit too well with us.

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.