Generally speaking long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. To wit, the Alibaba Group Holding Limited (NYSE:BABA) share price managed to fall 60% over five long years. We certainly feel for shareholders who bought near the top. And the share price decline continued over the last week, dropping some 6.8%.

With the stock having lost 6.8% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Looking back five years, both Alibaba Group Holding's share price and EPS declined; the latter at a rate of 8.5% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 17% per year, over the period. This implies that the market was previously too optimistic about the stock.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

This free interactive report on Alibaba Group Holding's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Alibaba Group Holding shareholders gained a total return of 21% during the year. Unfortunately this falls short of the market return. But at least that's still a gain! Over five years the TSR has been a reduction of 10% per year, over five years. So this might be a sign the business has turned its fortunes around. It's always interesting to track share price performance over the longer term. But to understand Alibaba Group Holding better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Alibaba Group Holding , and understanding them should be part of your investment process.

Of course Alibaba Group Holding 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.

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.