The past one-year earnings decline for Somero Enterprises (LON:SOM) likely explains shareholders long-term losses

It is a pleasure to report that the Somero Enterprises, Inc. (LON:SOM) is up 31% in the last quarter. But that doesn't change the reality of under-performance over the last twelve months. In fact, the price has declined 19% in a year, falling short of the returns you could get by investing in an index fund.

While the stock has risen 11% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

View our latest analysis for Somero Enterprises

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Unfortunately Somero Enterprises reported an EPS drop of 22% for the last year. This proportional reduction in earnings per share isn't far from the 19% decrease in the share price. Given the lower EPS we might have expected investors to lose confidence in the stock, but that doesn't seemed to have happened. Rather, the share price is remains a similar multiple of the EPS, suggesting the outlook remains the same.

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

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. We note that for Somero Enterprises the TSR over the last 1 year was -12%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 2.1% in the twelve months, Somero Enterprises shareholders did even worse, losing 12% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 9% per year over half a decade. 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 Somero Enterprises better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Somero Enterprises you should know about.

But note: Somero Enterprises may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.