The three-year earnings decline is not helping UPM-Kymmene Oyj's (HEL:UPM share price, as stock falls another 5.3% in past week

Investors are understandably disappointed when a stock they own declines in value. But no-one can make money on every call, especially in a declining market. While the UPM-Kymmene Oyj (HEL:UPM) share price is down 13% in the last three years, the total return to shareholders (which includes dividends) was -2.3%. That's better than the market which declined 21% over the last three years. Shareholders have had an even rougher run lately, with the share price down 12% in the last 90 days.

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

Check out our latest analysis for UPM-Kymmene Oyj

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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, UPM-Kymmene Oyj's earnings per share (EPS) dropped by 16% each year. This fall in the EPS is worse than the 4% compound annual share price fall. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term.

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

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

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. In the case of UPM-Kymmene Oyj, it has a TSR of -2.3% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

UPM-Kymmene Oyj shareholders are down 1.5% for the year (even including dividends), but the market itself is up 3.7%. 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. Longer term investors wouldn't be so upset, since they would have made 6%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand UPM-Kymmene Oyj better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with UPM-Kymmene Oyj (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Finnish 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.