The three-year loss for Alibaba Group Holding (NYSE:BABA) shareholders likely driven by its shrinking earnings
If you love investing in stocks you're bound to buy some losers. But the long term shareholders of Alibaba Group Holding Limited (NYSE:BABA) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 63% drop in the share price over that period. The more recent news is of little comfort, with the share price down 57% in a year. The falls have accelerated recently, with the share price down 24% in the last three months.
Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.
Check out our latest analysis for Alibaba Group Holding
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
During the three years that the share price fell, Alibaba Group Holding's earnings per share (EPS) dropped by 27% each year. So do you think it's a coincidence that the share price has dropped 28% per year, a very similar rate to the EPS? We don't. So it seems like sentiment towards the stock hasn't changed all that much over time. In this case, it seems that the EPS is guiding the share price.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on Alibaba Group Holding's earnings, revenue and cash flow.
A Different Perspective
We regret to report that Alibaba Group Holding shareholders are down 57% for the year. Unfortunately, that's worse than the broader market decline of 24%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. 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 - Alibaba Group Holding has 2 warning signs we think you should be aware of.
We will like Alibaba Group Holding better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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.
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