Huatai Securities (SHSE:601688) investors are sitting on a loss of 25% if they invested five years ago

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But every investor is virtually certain to have both over-performing and under-performing stocks. So we wouldn't blame long term Huatai Securities Co., Ltd. (SHSE:601688) shareholders for doubting their decision to hold, with the stock down 35% over a half decade.

Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

View our latest analysis for Huatai Securities

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.

During the unfortunate half decade during which the share price slipped, Huatai Securities actually saw its earnings per share (EPS) improve by 11% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Alternatively, growth expectations may have been unreasonable in the past.

Due to the lack of correlation between the EPS growth and the falling share price, it's worth taking a look at other metrics to try to understand the share price movement.

In contrast to the share price, revenue has actually increased by 7.1% a year in the five year period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

Huatai Securities is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Huatai Securities will earn in the future (free analyst consensus estimates)

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Huatai Securities the TSR over the last 5 years was -25%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Huatai Securities shareholders are down 18% over twelve months (even including dividends), which isn't far from the market return of -19%. Unfortunately, last year's performance is a deterioration of an already poor long term track record, given the loss of 5% per year over the last five years. It will probably take a substantial improvement in the fundamental performance for the company to reverse this trend. It's always interesting to track share price performance over the longer term. But to understand Huatai Securities better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Huatai Securities you should be aware of.

Of course Huatai Securities 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.