The five-year loss for Focusrite (LON:TUNE) shareholders likely driven by its shrinking earnings

Focusrite plc (LON:TUNE) shareholders should be happy to see the share price up 27% in the last quarter. But will that repair the damage for the weary investors who have owned this stock as it declined over half a decade? Probably not. Five years have seen the share price descend precipitously, down a full 77%. The recent bounce might mean the long decline is over, but we are not confident. The important question is if the business itself justifies a higher share price in the long term.

While the stock has risen 10% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Looking back five years, both Focusrite's share price and EPS declined; the latter at a rate of 23% per year. This change in EPS is reasonably close to the 26% average annual decrease in the share price. This implies that the market has had a fairly steady view of the stock. Rather, the share price change has reflected changes in earnings per share.

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

It might be well worthwhile taking a look at our free report on Focusrite's earnings, revenue and cash flow.

A Different Perspective

Investors in Focusrite had a tough year, with a total loss of 3.6% (including dividends), against a market gain of about 22%. 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. However, the loss over the last year isn't as bad as the 12% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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. For example, we've discovered 3 warning signs for Focusrite that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.