For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term EVT Limited (ASX:EVT) shareholders have had that experience, with the share price dropping 32% in three years, versus a market return of about 24%. The falls have accelerated recently, with the share price down 11% in the last three months.

With the stock having lost 6.9% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

See our latest analysis for EVT

While EVT made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.

Over three years, EVT grew revenue at 26% per year. That's well above most other pre-profit companies. While its revenue increased, the share price dropped at a rate of 10% per year. That seems like an unlucky result for holders. It's possible that the prior share price assumed unrealistically high future growth. Before considering a purchase, investors should consider how quickly expenses are growing, relative to revenue.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. This free report showing analyst forecasts should help you form a view on EVT

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for EVT the TSR over the last 3 years was -28%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in EVT had a tough year, with a total loss of 3.3% (including dividends), against a market gain of about 20%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% 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. It's always interesting to track share price performance over the longer term. But to understand EVT better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with EVT .