Shareholders in 1&1 (ETR:1U1) are in the red if they invested five years ago

While not a mind-blowing move, it is good to see that the 1&1 AG (ETR:1U1) share price has gained 15% in the last three months. But that doesn't change the fact that the returns over the last five years have been less than pleasing. After all, the share price is down 49% in that time, significantly under-performing the market.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

See 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 8.5% each year. This reduction in EPS is less than the 12% 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 10.13 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).

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

A Different Perspective

It's nice to see that 1&1 shareholders have received a total shareholder return of 47% over the last year. And that does include the dividend. That certainly beats the loss of about 8% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. To that end, you should be aware of the 1 warning sign we've spotted with 1&1 .

We will like 1&1 better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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.