a2 Milk (NZSE:ATM) shareholders have endured a 58% loss from investing in the stock five years ago

Statistically speaking, long term investing is a profitable endeavour. But no-one is immune from buying too high. For example, after five long years the The a2 Milk Company Limited (NZSE:ATM) share price is a whole 58% lower. That's not a lot of fun for true believers.

Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.

View our latest analysis for a2 Milk

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 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.

Looking back five years, both a2 Milk's share price and EPS declined; the latter at a rate of 10% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 16% per year, over the period. So it seems the market was too confident about the business, in the past.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Different Perspective

It's good to see that a2 Milk has rewarded shareholders with a total shareholder return of 43% in the last twelve months. Notably the five-year annualised TSR loss of 10% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. It's always interesting to track share price performance over the longer term. But to understand a2 Milk better, we need to consider many other factors. For instance, we've identified 1 warning sign for a2 Milk 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: many of them are unnoticed AND have attractive valuation).

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