Power Construction Corporation of China (SHSE:601669) investors are sitting on a loss of 32% if they invested three years ago

Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Power Construction Corporation of China, Ltd (SHSE:601669) shareholders, since the share price is down 35% in the last three years, falling well short of the market decline of around 8.8%. The falls have accelerated recently, with the share price down 10% in the last three months.

Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.

View our latest analysis for Power Construction Corporation of China

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).

Although the share price is down over three years, Power Construction Corporation of China actually managed to grow EPS by 8.9% per year in that time. 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). Alternatively, growth expectations may have been unreasonable in the past.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

Revenue is actually up 3.9% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Power Construction Corporation of China further; while we may be missing something on this analysis, there might also be an opportunity.

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

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized 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. So it makes a lot of sense to check out what analysts think Power Construction Corporation of China will earn in the future (free profit forecasts).

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Power Construction Corporation of China's TSR for the last 3 years was -32%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Power Construction Corporation of China shareholders are up 0.7% for the year (even including dividends). But that was short of the market average. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 6% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. It's always interesting to track share price performance over the longer term. But to understand Power Construction Corporation of China 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 Power Construction Corporation of China (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.