Guangzhou Zhiguang ElectricLtd (SZSE:002169 investor three-year losses grow to 44% as the stock sheds CN¥408m this past week

While not a mind-blowing move, it is good to see that the Guangzhou Zhiguang Electric Co.,Ltd. (SZSE:002169) share price has gained 26% in the last three months. But that cannot eclipse the less-than-impressive returns over the last three years. In fact, the share price is down 47% in the last three years, falling well short of the market return.

Since Guangzhou Zhiguang ElectricLtd has shed CN¥408m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Guangzhou Zhiguang ElectricLtd

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 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).

Guangzhou Zhiguang ElectricLtd saw its share price decline over the three years in which its EPS also dropped, falling to a loss. Due to the loss, it's not easy to use EPS as a reliable guide to the business. However, we can say we'd expect to see a falling share price in this scenario.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Dive deeper into Guangzhou Zhiguang ElectricLtd's key metrics by checking this interactive graph of Guangzhou Zhiguang ElectricLtd's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Guangzhou Zhiguang ElectricLtd the TSR over the last 3 years was -44%, 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

Investors in Guangzhou Zhiguang ElectricLtd had a tough year, with a total loss of 4.4% (including dividends), against a market gain of about 13%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.3% 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. 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. Case in point: We've spotted 3 warning signs for Guangzhou Zhiguang ElectricLtd you should be aware of.

For those who like to find winning investments this free list of undervalued 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.

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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.