De La Rue (LON:DLAR) shareholders have endured a 85% loss from investing in the stock five years ago

Long term investing works well, but it doesn’t always work for each individual stock. We really hate to see fellow investors lose their hard-earned money. Spare a thought for those who held De La Rue plc (LON:DLAR) for five whole years – as the share price tanked 87%. We also note that the stock has performed poorly over the last year, with the share price down 50%. More recently, the share price has dropped a further 12% in a month. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report. While a drop like that is definitely a body blow, money isn’t as important as health and happiness.

With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

View our latest analysis for De La Rue

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 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.

During the five years over which the share price declined, De La Rue’s earnings per share (EPS) dropped by 26% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 33% per year, over the period. This implies that the market is more cautious about the business these days. The low P/E ratio of 8.63 further reflects this reticence.

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

earnings-per-share-growth

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

What about the Total Shareholder Return (TSR)?

Investors should note that there’s a difference between De La Rue’s total shareholder return (TSR) and its share price change, which we’ve covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that De La Rue’s TSR, which was a 85% drop over the last 5 years, was not as bad as the share price return.

A Different Perspective

Investors in De La Rue had a tough year, with a total loss of 50%, against a market gain of about 0.5%. 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 13% 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 De La Rue better, we need to consider many other factors. For example, we’ve discovered 2 warning signs for De La Rue (1 shouldn’t be ignored!) that you should be aware of before investing here.

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 GB 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.