The one-year loss for SMA Solar Technology (ETR:S92) shareholders likely driven by its shrinking earnings

It's nice to see the SMA Solar Technology AG (ETR:S92) share price up 17% in a week. But that doesn't change the fact that the returns over the last year have been stomach churning. Indeed, the share price is down a whopping 72% in the last year. Arguably, the recent bounce is to be expected after such a bad drop. The bigger issue is whether the company can sustain the momentum in the long term.

While the last year has been tough for SMA Solar Technology 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.

See our latest analysis for SMA Solar Technology

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Unfortunately SMA Solar Technology reported an EPS drop of 64% for the last year. We note that the 72% share price drop is very close to the EPS drop. So it seems that the market sentiment has not changed much, despite the weak results. Rather, the share price has approximately tracked EPS growth.

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

It is of course excellent to see how SMA Solar Technology has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

SMA Solar Technology shareholders are down 72% for the year (even including dividends), but the market itself is up 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - SMA Solar Technology has 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.