Sanquan Food's (SZSE:002216) earnings have declined over year, contributing to shareholders 30% loss

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Sanquan Food Co., Ltd. (SZSE:002216) shareholders over the last year, as the share price declined 33%. That's disappointing when you consider the market declined 19%. We note that it has not been easy for shareholders over three years, either; the share price is down 33% in that time. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 11% in the same timeframe.

While the stock has risen 5.2% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

See our latest analysis for Sanquan Food

There is no denying that markets are sometimes efficient, but prices do not always reflect 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).

Unhappily, Sanquan Food had to report a 15% decline in EPS over the last year. This reduction in EPS is not as bad as the 33% share price fall. So it seems the market was too confident about the business, a year ago.

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Sanquan Food's earnings, revenue and cash flow.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Sanquan Food's TSR for the last 1 year was -30%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market lost about 19% in the twelve months, Sanquan Food shareholders did even worse, losing 30% (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 6%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. For example, we've discovered 1 warning sign for Sanquan Food that you should be aware of before investing here.

We will like Sanquan Food better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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