While not a mind-blowing move, it is good to see that the Befesa S.A. (ETR:BFSA) share price has gained 15% in the last three months. But over the last three years we've seen a quite serious decline. In that time, the share price dropped 63%. Some might say the recent bounce is to be expected after such a bad drop. The rise has some hopeful, but turnarounds are often precarious.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

View our latest analysis for Befesa

There is no denying that markets are sometimes efficient, but prices do not always reflect 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.

Befesa saw its EPS decline at a compound rate of 14% per year, over the last three years. This reduction in EPS is slower than the 28% annual reduction in the share price. So it seems the market was too confident about the business, in the past.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

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

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Befesa, it has a TSR of -60% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market gained around 18% in the last year, Befesa shareholders lost 21% (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 2% 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. It's always interesting to track share price performance over the longer term. But to understand Befesa better, we need to consider many other factors. For example, we've discovered 3 warning signs for Befesa (1 is a bit concerning!) 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 German 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.