USU Software (ETR:OSP2) stock falls 13% in past week as three-year earnings and shareholder returns continue downward trend

For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term USU Software AG (ETR:OSP2) shareholders have had that experience, with the share price dropping 33% in three years, versus a market decline of about 2.7%. Shareholders have had an even rougher run lately, with the share price down 31% in the last 90 days.

With the stock having lost 13% 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 USU Software

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the three years that the share price fell, USU Software's earnings per share (EPS) dropped by 9.8% each year. The share price decline of 13% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

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

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, USU Software's TSR for the last 3 years was -29%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in USU Software had a tough year, with a total loss of 9.5% (including dividends), against a market gain of about 11%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 2% 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with USU Software , and understanding them should be part of your investment process.

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.