Shareholders in Jiangsu Hongdou IndustrialLTD (SHSE:600400) have lost 28%, as stock drops 7.4% this past week

While not a mind-blowing move, it is good to see that the Jiangsu Hongdou Industrial Co.,LTD (SHSE:600400) share price has gained 13% in the last three months. But that cannot eclipse the less-than-impressive returns over the last three years. Truth be told the share price declined 31% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

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

View our latest analysis for Jiangsu Hongdou 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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over the three years that the share price declined, Jiangsu Hongdou IndustrialLTD's earnings per share (EPS) dropped significantly, 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 Jiangsu Hongdou IndustrialLTD's key metrics by checking this interactive graph of Jiangsu Hongdou IndustrialLTD's earnings, revenue and cash flow.

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. We note that for Jiangsu Hongdou IndustrialLTD the TSR over the last 3 years was -28%, 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

While the broader market gained around 12% in the last year, Jiangsu Hongdou IndustrialLTD shareholders lost 5.6% (even including dividends). 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand Jiangsu Hongdou IndustrialLTD better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Jiangsu Hongdou IndustrialLTD you should be aware of.

Of course Jiangsu Hongdou IndustrialLTD may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.