Shareholders in Farfetch (NYSE:FTCH) have lost 76%, as stock drops 15% this past week

As every investor would know, you don't hit a homerun every time you swing. But it should be a priority to avoid stomach churning catastrophes, wherever possible. It must have been painful to be a Farfetch Limited (NYSE:FTCH) shareholder over the last year, since the stock price plummeted 76% in that time. That'd be a striking reminder about the importance of diversification. Even if you look out three years, the returns are still disappointing, with the share price down54% in that time. Furthermore, it's down 47% in about a quarter. That's not much fun for holders.

If the past week is anything to go by, investor sentiment for Farfetch isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

View our latest analysis for Farfetch

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Farfetch managed to increase earnings per share from a loss to a profit, over the last 12 months.

We're surprised that the share price is lower given that improvement. If the improved profitability is a sign of things to come, then right now may prove the perfect time to pop this stock on your watchlist.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that Farfetch has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Farfetch will grow revenue in the future.

A Different Perspective

Farfetch shareholders are down 76% for the year, falling short of the market return. The market shed around 4.6%, no doubt weighing on the stock price. Shareholders have lost 15% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. 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. Take risks, for example - Farfetch has 3 warning signs (and 1 which is significant) we think you should know about.

But note: Farfetch may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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