Earnings growth of 1.7% over 3 years hasn't been enough to translate into positive returns for Watches of Switzerland Group (LON:WOSG) shareholders

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. Long term Watches of Switzerland Group plc (LON:WOSG) shareholders know that all too well, since the share price is down considerably over three years. So they might be feeling emotional about the 64% share price collapse, in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 38% lower in that time.

Since Watches of Switzerland Group has shed UK£90m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Watches of Switzerland 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 unfortunate three years of share price decline, Watches of Switzerland Group actually saw its earnings per share (EPS) improve by 5.3% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

We note that, in three years, revenue has actually grown at a 17% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Watches of Switzerland Group more closely, as sometimes stocks fall unfairly. This could present an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. If you are thinking of buying or selling Watches of Switzerland Group stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

Investors in Watches of Switzerland Group had a tough year, with a total loss of 38%, against a market gain of about 15%. 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. Longer term investors wouldn't be so upset, since they would have made 6%, each year, over five years. 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 Watches of Switzerland Group better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Watches of Switzerland Group , and understanding them should be part of your investment process.

Watches of Switzerland 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.