PayPal Holdings (NASDAQ:PYPL) shareholders have endured a 80% loss from investing in the stock three years ago

It's not possible to invest over long periods without making some bad investments. But you have a problem if you face massive losses more than once in a while. So consider, for a moment, the misfortune of PayPal Holdings, Inc. (NASDAQ:PYPL) investors who have held the stock for three years as it declined a whopping 80%. That would certainly shake our confidence in the decision to own the stock. Even worse, it's down 12% in about a month, which isn't fun at all. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

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.

See our latest analysis for PayPal Holdings

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

During the three years that the share price fell, PayPal Holdings' earnings per share (EPS) dropped by 2.3% each year. This reduction in EPS is slower than the 42% annual reduction in the share price. So it seems the market was too confident about the business, in the past.

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

earnings-per-share-growth

We know that PayPal Holdings has improved its bottom line lately, but is it going to grow revenue? Check if analysts think PayPal Holdings will grow revenue in the future.

A Different Perspective

PayPal Holdings shareholders are down 17% for the year, but the market itself is up 25%. 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 9% per year over five years. 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. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

But note: PayPal Holdings 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.

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