The five-year underlying earnings growth at Shanghai Tongji Science&Technology IndustrialLtd (SHSE:600846) is promising, but the shareholders are still in the red over that time

For many, the main point of investing is to generate higher returns than the overall market. But in any portfolio, there will be mixed results between individual stocks. So we wouldn't blame long term Shanghai Tongji Science&Technology Industrial Co.,Ltd (SHSE:600846) shareholders for doubting their decision to hold, with the stock down 24% over a half decade. Shareholders have had an even rougher run lately, with the share price down 14% in the last 90 days.

If the past week is anything to go by, investor sentiment for Shanghai Tongji Science&Technology IndustrialLtd isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for Shanghai Tongji Science&Technology IndustrialLtd

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the unfortunate half decade during which the share price slipped, Shanghai Tongji Science&Technology IndustrialLtd actually saw its earnings per share (EPS) improve by 7.8% 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.

Because of the sharp contrast between the EPS growth rate and the share price growth, we're inclined to look to other metrics to understand the changing market sentiment around the stock.

Revenue is actually up 3.2% over the time period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Take a more thorough look at Shanghai Tongji Science&Technology IndustrialLtd's financial health with this free report on its balance sheet.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Shanghai Tongji Science&Technology IndustrialLtd's TSR for the last 5 years was -12%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Although it hurts that Shanghai Tongji Science&Technology IndustrialLtd returned a loss of 7.9% in the last twelve months, the broader market was actually worse, returning a loss of 13%. Given the total loss of 2% per year over five years, it seems returns have deteriorated in the last twelve months. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. It's always interesting to track share price performance over the longer term. But to understand Shanghai Tongji Science&Technology IndustrialLtd 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 Shanghai Tongji Science&Technology IndustrialLtd (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.