While shareholders of HMT (Xiamen) New Technical Materials (SHSE:603306) are in the red over the last three years, underlying earnings have actually grown

If you love investing in stocks you're bound to buy some losers. Long term HMT (Xiamen) New Technical Materials Co., Ltd (SHSE:603306) shareholders know that all too well, since the share price is down considerably over three years. Sadly for them, the share price is down 58% in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 40% lower in that time. The falls have accelerated recently, with the share price down 12% in the last three months. Of course, this share price action may well have been influenced by the 5.0% decline in the broader market, throughout the period.

While the stock has risen 7.3% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

Check out our latest analysis for HMT (Xiamen) New Technical Materials

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 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, HMT (Xiamen) New Technical Materials actually managed to grow EPS by 3.9% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

After considering the numbers, we'd posit that the the market had higher expectations of EPS growth, three years back. However, taking a look at other business metrics might shed a bit more light on the share price action.

With a rather small yield of just 1.1% we doubt that the stock's share price is based on its dividend. Revenue is actually up 25% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching HMT (Xiamen) New Technical Materials more closely, as sometimes stocks fall unfairly. This could present 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).

We know that HMT (Xiamen) New Technical Materials has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think HMT (Xiamen) New Technical Materials will earn in the future (free profit forecasts).

A Different Perspective

While the broader market lost about 17% in the twelve months, HMT (Xiamen) New Technical Materials shareholders did even worse, losing 39% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 8%, each year, over five years. 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 HMT (Xiamen) New Technical Materials better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for HMT (Xiamen) New Technical Materials you should know about.

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.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com