Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. Spare a thought for those who held Hello Group Inc. (NASDAQ:MOMO) for five whole years - as the share price tanked 80%. We also note that the stock has performed poorly over the last year, with the share price down 34%. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

Since Hello Group has shed US$70m 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 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.

During the five years over which the share price declined, Hello Group's earnings per share (EPS) dropped by 5.2% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 27% per year, over the period. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 3.87.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Hello Group has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Hello Group's TSR for the last 5 years was -71%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Hello Group shareholders are down 28% for the year (even including dividends), but the market itself is up 30%. 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 11% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Hello Group better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Hello Group (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

But note: Hello Group may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.