As every investor would know, not every swing hits the sweet spot. But really big losses can really drag down an overall portfolio. So spare a thought for the long term shareholders of The Estée Lauder Companies Inc. (NYSE:EL); the share price is down a whopping 72% in the last three years. That'd be enough to cause even the strongest minds some disquiet. The more recent news is of little comfort, with the share price down 44% in a year. The falls have accelerated recently, with the share price down 28% in the last three months.

If the past week is anything to go by, investor sentiment for Estée Lauder Companies isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the three years that the share price fell, Estée Lauder Companies' earnings per share (EPS) dropped by 22% each year. The share price decline of 34% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past. Having said that, the market is still optimistic, given the P/E ratio of 52.23.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Estée Lauder Companies' earnings, revenue and cash flow.

A Different Perspective

Investors in Estée Lauder Companies had a tough year, with a total loss of 43% (including dividends), against a market gain of about 16%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. 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. 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. For example, we've discovered 4 warning signs for Estée Lauder Companies (1 doesn't sit too well with us!) that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).

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

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