Salvatore Ferragamo's (BIT:SFER) one-year decline in earnings translates into losses for shareholders

The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. For example, the Salvatore Ferragamo S.p.A. (BIT:SFER) share price is down 41% in the last year. That contrasts poorly with the market return of 18%. We note that it has not been easy for shareholders over three years, either; the share price is down 34% in that time. More recently, the share price has dropped a further 11% in a month.

While the last year has been tough for Salvatore Ferragamo shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

See our latest analysis for Salvatore Ferragamo

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Unhappily, Salvatore Ferragamo had to report a 72% decline in EPS over the last year. The share price fall of 41% isn't as bad as the reduction in earnings per share. It may have been that the weak EPS was not as bad as some had feared. Indeed, with a P/E ratio of 59.42 there is obviously some real optimism that earnings will bounce back.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Salvatore Ferragamo has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Salvatore Ferragamo's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market gained around 18% in the last year, Salvatore Ferragamo shareholders lost 40% (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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Salvatore Ferragamo better, we need to consider many other factors. For instance, we've identified 2 warning signs for Salvatore Ferragamo that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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