The three-year loss for Keywords Studios (LON:KWS) shareholders likely driven by its shrinking earnings

Keywords Studios plc (LON:KWS) shareholders should be happy to see the share price up 13% in the last month. But that cannot eclipse the less-than-impressive returns over the last three years. After all, the share price is down 47% in the last three years, significantly under-performing the market.

While the stock has risen 9.7% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

Check out our latest analysis for Keywords Studios

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. 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.

Keywords Studios saw its EPS decline at a compound rate of 6.1% per year, over the last three years. This reduction in EPS is slower than the 19% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. Of course, with a P/E ratio of 59.47, the market remains optimistic.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

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. Dive deeper into the earnings by checking this interactive graph of Keywords Studios' earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 10% in the last year, Keywords Studios shareholders lost 45% (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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 2 warning signs for Keywords Studios that you should be aware of.

Keywords Studios is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.