Platinum Investment Management (ASX:PTM) investors are sitting on a loss of 67% if they invested five years ago

Statistically speaking, long term investing is a profitable endeavour. But unfortunately, some companies simply don't succeed. For example the Platinum Investment Management Limited (ASX:PTM) share price dropped 78% over five years. We certainly feel for shareholders who bought near the top. We also note that the stock has performed poorly over the last year, with the share price down 43%. Even worse, it's down 11% in about a month, which isn't fun at all.

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.

View our latest analysis for Platinum Investment Management

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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, Platinum Investment Management's earnings per share (EPS) dropped by 13% each year. This reduction in EPS is less than the 26% annual reduction in the share price. This implies that the market is more cautious about the business these days. The less favorable sentiment is reflected in its current P/E ratio of 7.43.

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

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

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Platinum Investment Management's TSR for the last 5 years was -67%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Platinum Investment Management had a tough year, with a total loss of 37% (including dividends), against a market gain of about 11%. 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. 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 Platinum Investment Management better, we need to consider many other factors. Take risks, for example - Platinum Investment Management has 2 warning signs we think you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.