Further weakness as SMA Solar Technology (ETR:S92) drops 32% this week, taking three-year losses to 68%

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. Long term SMA Solar Technology AG (ETR:S92) shareholders know that all too well, since the share price is down considerably over three years. Regrettably, they have had to cope with a 68% drop in the share price over that period. And the share price decline continued over the last week, dropping some 32%.

If the past week is anything to go by, investor sentiment for SMA Solar Technology isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

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Because SMA Solar Technology made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over three years, SMA Solar Technology grew revenue at 15% per year. That's a pretty good rate of top-line growth. That contrasts with the weak share price, which has fallen 19% compounded, over three years. To be frank we're surprised to see revenue growth and share price growth diverge so strongly. It would be well worth taking a closer look at the company, to determine growth trends (and balance sheet strength).

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

This free interactive report on SMA Solar Technology's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

SMA Solar Technology shareholders are down 20% for the year, but the market itself is up 17%. 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 9% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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 1 warning sign for SMA Solar Technology you should be aware of.

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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.