Market is not liking Winbond Electronics' (TWSE:2344) earnings decline as stock retreats 7.1% this week

As an investor its worth striving to ensure your overall portfolio beats the market average. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term Winbond Electronics Corporation (TWSE:2344) shareholders, since the share price is down 51% in the last three years, falling well short of the market return of around 42%. And over the last year the share price fell 47%, so we doubt many shareholders are delighted. Shareholders have had an even rougher run lately, with the share price down 29% in the last 90 days.

Since Winbond Electronics has shed NT$5.2b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for Winbond Electronics

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Winbond Electronics became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. So it's worth looking at other metrics to try to understand the share price move.

We think that the revenue decline over three years, at a rate of 11% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.

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 Winbond Electronics has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Winbond Electronics

What About The Total Shareholder Return (TSR)?

We've already covered Winbond Electronics' share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Winbond Electronics shareholders, and that cash payout explains why its total shareholder loss of 46%, over the last 3 years, isn't as bad as the share price return.

A Different Perspective

Winbond Electronics shareholders are down 47% for the year, but the market itself is up 31%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% 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 example, we've discovered 2 warning signs for Winbond Electronics that you should be aware of before investing here.

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 Taiwanese 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.