Yahoo Finance Alibaba Group Holding's (NYSE:BABA) three-year decline in earnings translates into losses for shareholders
This month, we saw the Alibaba Group Holding Limited (NYSE:BABA) up an impressive 39%. But that doesn't change the fact that the returns over the last three years have been disappointing. In that time, the share price dropped 55%. So it's good to see it climbing back up. The rise has some hopeful, but turnarounds are often precarious.
On a more encouraging note the company has added CN¥39b to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.
See our latest analysis for Alibaba Group Holding
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
Alibaba Group Holding saw its EPS decline at a compound rate of 56% per year, over the last three years. In comparison the 24% compound annual share price decline isn't as bad as the EPS drop-off. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term. With a P/E ratio of 122.81, it's fair to say the market sees a brighter future for the business.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
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
While the broader market lost about 14% in the twelve months, Alibaba Group Holding shareholders did even worse, losing 20%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 8% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 2 warning signs for Alibaba Group Holding you should be aware of.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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