Even though Adeia (NASDAQ:ADEA) has lost US$77m market cap in last 7 days, shareholders are still up 153% over 5 years

It's possible to achieve returns close to the market-weighted average return by buying an index fund. But even in a market-beating portfolio, some stocks will lag the market. While the Adeia Inc. (NASDAQ:ADEA) share price is down 38% over half a decade, the total return to shareholders (which includes dividends) was 153%. That's better than the market which returned 75% over the same time. Furthermore, it's down 23% in about a quarter. That's not much fun for holders.

With the stock having lost 5.2% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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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.

Adeia became profitable within the last five years. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.

We don't think that the 1.6% is big factor in the share price, since it's quite small, as dividends go. Arguably, the revenue drop of 18% a year for half a decade suggests that the company can't grow in the long term. This has probably encouraged some shareholders to sell down the stock.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We know that Adeia has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Adeia in this interactive graph of future profit estimates.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Adeia the TSR over the last 5 years was 153%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Adeia shareholders are down 5.5% for the year (even including dividends), but the market itself is up 16%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 20% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Even so, be aware that Adeia is showing 3 warning signs in our investment analysis , you should know about...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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