Shandong Linglong TyreLtd's (SHSE:601966) earnings have declined over three years, contributing to shareholders 52% loss

Investing in stocks inevitably means buying into some companies that perform poorly. But long term Shandong Linglong Tyre Co.,Ltd. (SHSE:601966) shareholders have had a particularly rough ride in the last three year. So they might be feeling emotional about the 54% share price collapse, in that time. The falls have accelerated recently, with the share price down 15% in the last three months.

On a more encouraging note the company has added CN¥1.4b to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

Check out our latest analysis for Shandong Linglong TyreLtd

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).

Shandong Linglong TyreLtd saw its EPS decline at a compound rate of 16% per year, over the last three years. The share price decline of 23% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Shandong Linglong TyreLtd has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

A Different Perspective

Shandong Linglong TyreLtd shareholders are down 17% over twelve months (even including dividends), which isn't far from the market return of -17%. Longer term investors wouldn't be so upset, since they would have made 0.9%, each year, over five years. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. It's always interesting to track share price performance over the longer term. But to understand Shandong Linglong TyreLtd better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Shandong Linglong TyreLtd you should know about.

Of course Shandong Linglong TyreLtd 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 Chinese 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