The truth is that if you invest for long enough, you’re going to end up with some losing stocks. But the last three years have been particularly tough on longer term SThree plc (LON:STEM) shareholders. Unfortunately, they have held through a 61% decline in the share price in that time. And the ride hasn’t got any smoother in recent times over the last year, with the price 54% lower in that time. Furthermore, it’s down 22% in about a quarter. That’s not much fun for holders.

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

SThree saw its EPS decline at a compound rate of 18% per year, over the last three years. This reduction in EPS is slower than the 27% annual reduction in the share price. So it’s likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. The less favorable sentiment is reflected in its current P/E ratio of 7.03.

You can see how EPS has 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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, SThree’s TSR for the last 3 years was -54%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

While the broader market gained around 23% in the last year, SThree shareholders lost 50% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7% over the last half decade. 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. Even so, be aware that SThree is showing 4 warning signs in our investment analysis , and 1 of those is potentially serious…