Shenzhen Maxonic Automation Control (SZSE:300112 investor three-year losses grow to 36% as the stock sheds CN¥347m this past week

For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Shenzhen Maxonic Automation Control Co., Ltd. (SZSE:300112) shareholders have had that experience, with the share price dropping 41% in three years, versus a market decline of about 17%. And the ride hasn't got any smoother in recent times over the last year, with the price 23% lower in that time. Unfortunately the share price momentum is still quite negative, with prices down 17% in thirty days.

If the past week is anything to go by, investor sentiment for Shenzhen Maxonic Automation Control isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

Check out our latest analysis for Shenzhen Maxonic Automation Control

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).

Over the three years that the share price declined, Shenzhen Maxonic Automation Control's earnings per share (EPS) dropped significantly, falling to a loss. Extraordinary items contributed to this situation. Since the company has fallen to a loss making position, it's hard to compare the change in EPS with the share price change. But it's safe to say we'd generally expect the share price to be lower as a result!

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Dive deeper into Shenzhen Maxonic Automation Control's key metrics by checking this interactive graph of Shenzhen Maxonic Automation Control'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). 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. As it happens, Shenzhen Maxonic Automation Control's TSR for the last 3 years was -36%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Shenzhen Maxonic Automation Control shareholders are down 21% for the year (even including dividends), but the market itself is up 7.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.1% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Shenzhen Maxonic Automation Control , and understanding them should be part of your investment process.

We will like Shenzhen Maxonic Automation Control better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.