Sichuan Chengfei Integration TechnologyLtd (SZSE:002190) shareholders have lost 41% over 3 years, earnings decline likely the culprit

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Sichuan Chengfei Integration Technology Corp.Ltd (SZSE:002190) shareholders have had that experience, with the share price dropping 41% in three years, versus a market decline of about 23%. The more recent news is of little comfort, with the share price down 32% in a year. Even worse, it's down 9.6% in about a month, which isn't fun at all. However, we note the price may have been impacted by the broader market, which is down 5.8% in the same time period.

Since Sichuan Chengfei Integration TechnologyLtd has shed CN¥387m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for Sichuan Chengfei Integration TechnologyLtd

There is no denying that markets are sometimes efficient, but prices do not always reflect 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, Sichuan Chengfei Integration TechnologyLtd's earnings per share (EPS) dropped by 66% each year. This was, in part, due to extraordinary items impacting earnings. This fall in the EPS is worse than the 16% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines. This positive sentiment is also reflected in the generous P/E ratio of 1.01k.

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

While the broader market lost about 12% in the twelve months, Sichuan Chengfei Integration TechnologyLtd shareholders did even worse, losing 32% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 2% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Sichuan Chengfei Integration TechnologyLtd better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Sichuan Chengfei Integration TechnologyLtd , and understanding them should be part of your investment process.

But note: Sichuan Chengfei Integration TechnologyLtd 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 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.