Earnings growth of 99% over 1 year hasn't been enough to translate into positive returns for CML Microsystems (LON:CML) shareholders

Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by CML Microsystems plc (LON:CML) shareholders over the last year, as the share price declined 38%. That contrasts poorly with the market return of 8.3%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 3.9% in three years. Unfortunately the share price momentum is still quite negative, with prices down 20% in thirty days.

Since CML Microsystems has shed UK£7.3m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for CML Microsystems

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the unfortunate twelve months during which the CML Microsystems share price fell, it actually saw its earnings per share (EPS) improve by 99%. It could be that the share price was previously over-hyped.

The divergence between the EPS and the share price is quite notable, during the year. So it's well worth checking out some other metrics, too.

CML Microsystems managed to grow revenue over the last year, which is usually a real positive. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that CML Microsystems has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at CML Microsystems' financial health with this free report on its balance sheet.

A Different Perspective

While the broader market gained around 8.3% in the last year, CML Microsystems shareholders lost 36% (even including dividends). 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. On the bright side, long term shareholders have made money, with a gain of 10% 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 CML Microsystems better, we need to consider many other factors. Take risks, for example - CML Microsystems has 3 warning signs we think you should be aware of.

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.