0.5% earnings growth over 5 years has not materialized into gains for Shanghai Waigaoqiao Free Trade Zone Group (SHSE:600648) shareholders over that period

We think intelligent long term investing is the way to go. But no-one is immune from buying too high. For example the Shanghai Waigaoqiao Free Trade Zone Group Co., Ltd. (SHSE:600648) share price dropped 64% over five years. That's not a lot of fun for true believers. And some of the more recent buyers are probably worried, too, with the stock falling 25% in the last year.

With the stock having lost 3.3% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

View our latest analysis for Shanghai Waigaoqiao Free Trade Zone Group

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).

During the unfortunate half decade during which the share price slipped, Shanghai Waigaoqiao Free Trade Zone Group actually saw its earnings per share (EPS) improve by 2.6% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.

By glancing at these numbers, we'd posit that the the market had expectations of much higher growth, five years ago. Looking to other metrics might better explain the share price change.

The revenue fall of 0.3% per year for five years is neither good nor terrible. But it's quite possible the market had expected better; a closer look at the revenue trends might explain the pessimism.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Shanghai Waigaoqiao Free Trade Zone Group the TSR over the last 5 years was -60%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market lost about 15% in the twelve months, Shanghai Waigaoqiao Free Trade Zone Group shareholders did even worse, losing 23% (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 10% over the last half decade. 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Shanghai Waigaoqiao Free Trade Zone Group is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.