The past five-year earnings decline for Burberry Group (LON:BRBY) likely explains shareholders long-term losses

It is doubtless a positive to see that the Burberry Group plc (LON:BRBY) share price has gained some 49% in the last three months. But that doesn't change the fact that the returns over the last five years have been less than pleasing. After all, the share price is down 39% in that time, significantly under-performing the market.

The recent uptick of 8.8% could be a positive sign of things to come, so let's take a look at historical fundamentals.

View our latest analysis for Burberry Group

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 Burberry Group's share price and EPS declined; the latter at a rate of 34% per year. This fall in the EPS is worse than the 9% compound annual share price fall. So the market may previously have expected a drop, or else it expects the situation will improve. The high P/E ratio of 113.86 suggests that shareholders believe earnings will grow in the years ahead.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Burberry Group's earnings, revenue and cash flow.

What About The Total Shareholder Return (TSR)?

We've already covered Burberry 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. Its history of dividend payouts mean that Burberry Group's TSR, which was a 30% drop over the last 5 years, was not as bad as the share price return.

A Different Perspective

Burberry Group shareholders are down 3.2% for the year, but the market itself is up 13%. 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, longer term shareholders are suffering worse, given the loss of 5% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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. Take risks, for example - Burberry Group has 2 warning signs we think you should be aware of.

Burberry Group is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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.