Close Brothers Group (LON:CBG) sheds UK£35m, company earnings and investor returns have been trending downwards for past five years

Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. Anyone who held Close Brothers Group plc (LON:CBG) for five years would be nursing their metaphorical wounds since the share price dropped 87% in that time. And it's not just long term holders hurting, because the stock is down 67% in the last year. Furthermore, it's down 45% in about a quarter. That's not much fun for holders. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

Since Close Brothers Group has shed UK£35m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for Close Brothers Group

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the five years over which the share price declined, Close Brothers Group's earnings per share (EPS) dropped by 15% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 33% per year, over the period. This implies that the market is more cautious about the business these days. The less favorable sentiment is reflected in its current P/E ratio of 3.49.

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

This free interactive report on Close Brothers Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About The Total Shareholder Return (TSR)?

We've already covered Close Brothers Group's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Close Brothers Group's TSR of was a loss of 83% for the 5 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

Close Brothers Group shareholders are down 67% for the year, but the market itself is up 9.5%. 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, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 13% over the last half decade. 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. 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 Close Brothers Group .

For those who like to find winning investments this free list of undervalued 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 British 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.