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SAP (ETR:SAP) shareholders have endured a 7.7% loss from investing in the stock three years ago

While not a mind-blowing move, it is good to see that the SAP SE (ETR:SAP) share price has gained 26% in the last three months. But that doesn't help the fact that the three year return is less impressive. After all, the share price is down 13% in the last three years, significantly under-performing the market.

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 SAP

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 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.

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During the unfortunate three years of share price decline, SAP actually saw its earnings per share (EPS) improve by 0.3% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

With EPS gaining and a declining share price, one would suggest the market is cooling on its view of the company. Of course, this could spell opportunity because if the EPS growth continues long term, it seems very likely the share price will rise too.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
earnings-per-share-growth

This free interactive report on SAP's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. We note that for SAP the TSR over the last 3 years was -7.7%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Although it hurts that SAP returned a loss of 4.2% in the last twelve months, the broader market was actually worse, returning a loss of 12%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 4% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand SAP better, we need to consider many other factors. For example, we've discovered 1 warning sign for SAP 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 DE exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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