Focusrite (LON:TUNE) earnings and shareholder returns have been trending downwards for the last three years, but the stock pops 13% this past week

Explore Focusrite's Fair Values from the Community and select yours

While not a mind-blowing move, it is good to see that the Focusrite plc (LON:TUNE) share price has gained 19% in the last three months. But the last three years have seen a terrible decline. Indeed, the share price is down a whopping 83% in the last three years. So we're relieved for long term holders to see a bit of uplift. Of course the real question is whether the business can sustain a turnaround. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

While the last three years has been tough for Focusrite shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

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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. 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.

During the three years that the share price fell, Focusrite's earnings per share (EPS) dropped by 56% each year. This fall in the EPS is worse than the 45% compound annual share price fall. So the market may not be too worried about the EPS figure, at the moment -- or it may have previously priced some of the drop in. This positive sentiment is also reflected in the generous P/E ratio of 52.78.

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 Focusrite's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Focusrite shareholders are down 50% for the year (even including dividends), but the market itself is up 22%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 12% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 3 warning signs we've spotted with Focusrite .

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.