Positive earnings growth hasn't been enough to get Sichuan SwellfunLtd (SHSE:600779) shareholders a favorable return over the last three years

As an investor, mistakes are inevitable. But really bad investments should be rare. So take a moment to sympathize with the long term shareholders of Sichuan Swellfun Co.,Ltd (SHSE:600779), who have seen the share price tank a massive 75% over a three year period. That'd be enough to cause even the strongest minds some disquiet. And more recent buyers are having a tough time too, with a drop of 41% in the last year. Furthermore, it's down 14% in about a quarter. That's not much fun for holders.

While the last three years has been tough for Sichuan SwellfunLtd shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

View our latest analysis for Sichuan SwellfunLtd

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 three years of share price decline, Sichuan SwellfunLtd actually saw its earnings per share (EPS) improve by 11% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

Revenue is actually up 5.2% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Sichuan SwellfunLtd further; while we may be missing something on this analysis, there might also be an opportunity.

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

Sichuan SwellfunLtd is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Sichuan SwellfunLtd stock, you should check out this free report showing analyst consensus estimates for future profits.

A Different Perspective

We regret to report that Sichuan SwellfunLtd shareholders are down 40% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 17%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Sichuan SwellfunLtd has 2 warning signs (and 1 which can't be ignored) 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.

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