Pernod Ricard (EPA:RI) stock falls 5.9% in past week as one-year earnings and shareholder returns continue downward trend

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in Pernod Ricard SA (EPA:RI) have tasted that bitter downside in the last year, as the share price dropped 32%. That's disappointing when you consider the market returned 8.9%. At least the damage isn't so bad if you look at the last three years, since the stock is down 16% in that time.

Since Pernod Ricard has shed €2.2b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for Pernod Ricard

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Unfortunately Pernod Ricard reported an EPS drop of 14% for the last year. The share price decline of 32% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Pernod Ricard has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

Investors in Pernod Ricard had a tough year, with a total loss of 30% (including dividends), against a market gain of about 8.9%. 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 0.3% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Pernod Ricard better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Pernod Ricard (of which 1 is a bit concerning!) you should know about.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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