If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the last three years have been particularly tough on longer term AudioCodes Ltd. (NASDAQ:AUDC) shareholders. Regrettably, they have had to cope with a 64% drop in the share price over that period. And the share price decline continued over the last week, dropping some 14%.

Since AudioCodes has shed US$54m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

AudioCodes saw its EPS decline at a compound rate of 31% per year, over the last three years. This fall in EPS isn't far from the rate of share price decline, which was 29% per year. That suggests that the market sentiment around the company hasn't changed much over that time, despite the disappointment. In this case, it seems that the EPS is guiding the share price.

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

Dive deeper into AudioCodes' key metrics by checking this interactive graph of AudioCodes's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for AudioCodes the TSR over the last 3 years was -61%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

AudioCodes shareholders are up 5.4% for the year (even including dividends). But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 5% endured over half a decade. So this might be a sign the business has turned its fortunes around. 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. Case in point: We've spotted 2 warning signs for AudioCodes you should be aware of, and 1 of them is potentially serious.

Of course AudioCodes may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.