Hongta Securities (SHSE:601236) investors are sitting on a loss of 55% if they invested five years ago

Generally speaking long term investing is the way to go. But no-one is immune from buying too high. Zooming in on an example, the Hongta Securities Co., Ltd. (SHSE:601236) share price dropped 62% in the last half decade. That's an unpleasant experience for long term holders.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

View our latest analysis for Hongta Securities

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

Looking back five years, both Hongta Securities' share price and EPS declined; the latter at a rate of 5.8% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 18% per year, over the period. This implies that the market is more cautious about the business these days. Of course, with a P/E ratio of 51.28, the market remains optimistic.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Hongta Securities has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Hongta Securities will grow revenue in the future.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Hongta Securities the TSR over the last 5 years was -55%, 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

Hongta Securities shareholders are up 10% for the year (even including dividends). But that return falls short of the market. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 9% endured over half a decade. So this might be a sign the business has turned its fortunes around. 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. Take risks, for example - Hongta Securities has 2 warning signs (and 1 which is concerning) we think you should know about.

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.