Investors in SomnoMed (ASX:SOM) have unfortunately lost 44% over the last five years

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But even the best stock picker will only win with some selections. So we wouldn't blame long term SomnoMed Limited (ASX:SOM) shareholders for doubting their decision to hold, with the stock down 52% over a half decade. And we doubt long term believers are the only worried holders, since the stock price has declined 25% over the last twelve months. More recently, the share price has dropped a further 9.6% in a month.

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.

See our latest analysis for SomnoMed

SomnoMed 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. Shareholders of unprofitable companies usually expect strong revenue growth. That's because it's hard to be confident a company will be sustainable if revenue growth is negligible, and it never makes a profit.

In the last half decade, SomnoMed saw its revenue increase by 7.2% per year. That's a fairly respectable growth rate. The share price, meanwhile, has fallen 9% compounded, over five years. That suggests the market is disappointed with the current growth rate. That could lead to an opportunity if the company is going to become profitable sooner rather than later.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth

This free interactive report on SomnoMed's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between SomnoMed's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. SomnoMed hasn't been paying dividends, but its TSR of -44% exceeds its share price return of -52%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

While the broader market gained around 6.3% in the last year, SomnoMed shareholders lost 25%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 8% per year over five years. 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. For example, we've discovered 1 warning sign for SomnoMed that you should be aware of before investing here.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian 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.