1.0% earnings growth over 5 years has not materialized into gains for Radware (NASDAQ:RDWR) shareholders over that period

The main aim of stock picking is to find the market-beating stocks. But every investor is virtually certain to have both over-performing and under-performing stocks. So we wouldn't blame long term Radware Ltd. (NASDAQ:RDWR) shareholders for doubting their decision to hold, with the stock down 13% over a half decade. Unfortunately the last month hasn't been any better, with the share price down 17%. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

Since Radware has shed US$51m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Radware moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.

Revenue is actually up 1.0% over the time period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

We know that Radware has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Radware's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Radware shareholders are down 4.6% for the year, but the market itself is up 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% per year over five years. 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Radware (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.

Of course Radware 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.