It is doubtless a positive to see that the Cavendish plc (LON:CAV) share price has gained some 35% in the last three months. But that cannot eclipse the less-than-impressive returns over the last three years. After all, the share price is down 48% in the last three years, significantly under-performing the market.

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.

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Cavendish wasn’t profitable in the last twelve months, it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. When a company doesn’t make profits, we’d generally hope to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

In the last three years Cavendish saw its revenue shrink by 1.4% per year. That’s not what investors generally want to see. The annual decline of 14% per year in that period has clearly disappointed holders. And with no profits, and weak revenue, are you surprised? However, in this kind of situation you can sometimes find opportunity, where sentiment is negative but the company is actually making good progress.

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 like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Cavendish’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 Cavendish the TSR over the last 3 years was -42%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

While the broader market gained around 11% in the last year, Cavendish shareholders lost 14% (even including dividends). 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 5% 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. 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 – Cavendish has 5 warning signs (and 1 which shouldn’t be ignored) we think you should know about.