Investors five-year losses continue as 1&1 (ETR:1U1) dips a further 4.3% this week, earnings continue to decline

Statistically speaking, long term investing is a profitable endeavour. But no-one is immune from buying too high. For example, after five long years the 1&1 AG (ETR:1U1) share price is a whole 55% lower. We certainly feel for shareholders who bought near the top. The falls have accelerated recently, with the share price down 19% in the last three months.

With the stock having lost 4.3% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

Check out our latest analysis for 1&1

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 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 five years over which the share price declined, 1&1's earnings per share (EPS) dropped by 7.7% each year. This reduction in EPS is less than the 15% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The low P/E ratio of 9.03 further reflects this reticence.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It might be well worthwhile taking a look at our free report on 1&1's earnings, revenue and cash flow.

A Different Perspective

Investors in 1&1 had a tough year, with a total loss of 3.2% (including dividends), against a market gain of about 6.6%. 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, longer term shareholders are suffering worse, given the loss of 9% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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. To that end, you should be aware of the 1 warning sign we've spotted with 1&1 .

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.