T
o justify individual stock selection, beating a market index fund's returns is the goal. However, some stocks inevitably fall short. Fundamenta Real Estate AG (VTX:FREN) shareholders have seen their share price drop 20% over three years, underperforming the market's decline of around 3.7%. Let's examine the underlying fundamentals to see if they've been consistent with returns.

    As Warren Buffett once said, "There will continue to be wide discrepancies between price and value in the marketplace." One way to gauge market perception is by comparing earnings per share (EPS) changes with share price movements. During the three-year period where the share price fell, Fundamenta Real Estate's EPS dropped 24% annually. This decline was more pronounced than the 7% compound annual share price drop.

    The company's earnings per share over time are depicted in the image below. It may be worth reviewing our free report on Fundamenta Real Estate's earnings, revenue, and cash flow. Total shareholder return (TSR) is another metric to consider, as it includes dividend payments and discounted capital raising or spin-off benefits. Fundamenta Real Estate's TSR for the last three years was -12%, largely due to its dividend payments.

    Shareholders are down 2.9% this year, but the market has risen 14%. Even good stocks experience share price drops, so we look for improvements in fundamental metrics before getting interested. Longer-term investors have made 4% annually over five years and may see the current sell-off as an opportunity worth considering.

    While market conditions can impact share prices, other factors are more important. We've identified three warning signs for Fundamenta Real Estate (2 shouldn't be ignored!) that you should be aware of before investing here.