Earnings growth of 0.7% over 3 years hasn't been enough to translate into positive returns for Guangzhou KDT MachineryLtd (SZSE:002833) shareholders

Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term Guangzhou KDT Machinery Co.,Ltd. (SZSE:002833) shareholders, since the share price is down 31% in the last three years, falling well short of the market decline of around 17%. More recently, the share price has dropped a further 17% in a month.

Since Guangzhou KDT MachineryLtd has shed CN¥564m 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 KDT MachineryLtd

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Although the share price is down over three years, Guangzhou KDT MachineryLtd actually managed to grow EPS by 2.0% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

It's pretty reasonable to suspect the market was previously to bullish on the stock, and has since moderated expectations. But it's possible a look at other metrics will be enlightening.

Revenue is actually up 8.2% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Guangzhou KDT MachineryLtd further; while we may be missing something on this analysis, there might also be an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

If you are thinking of buying or selling Guangzhou KDT MachineryLtd stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Guangzhou KDT MachineryLtd, it has a TSR of -22% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Investors in Guangzhou KDT MachineryLtd had a tough year, with a total loss of 3.3% (including dividends), against a market gain of about 7.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 5% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Guangzhou KDT MachineryLtd better, we need to consider many other factors. For example, we've discovered 1 warning sign for Guangzhou KDT MachineryLtd that you should be aware of before investing here.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.