Investors three-year losses continue as Guangdong Transtek Medical Electronics (SZSE:300562) dips a further 12% this week, earnings continue to decline

For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Guangdong Transtek Medical Electronics Co., Ltd (SZSE:300562) shareholders, since the share price is down 49% in the last three years, falling well short of the market decline of around 23%. Even worse, it's down 22% in about a month, which isn't fun at all.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

See our latest analysis for Guangdong Transtek Medical Electronics

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Guangdong Transtek Medical Electronics became profitable within the last five years. We would usually expect to see the share price rise as a result. So it's worth looking at other metrics to try to understand the share price move.

The modest 1.9% dividend yield is unlikely to be guiding the market view of the stock. Arguably the revenue decline of 27% per year has people thinking Guangdong Transtek Medical Electronics is shrinking. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

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. This free report showing analyst forecasts should help you form a view on Guangdong Transtek Medical Electronics

A Different Perspective

We regret to report that Guangdong Transtek Medical Electronics shareholders are down 16% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 12%. 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 5% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Guangdong Transtek Medical Electronics better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with Guangdong Transtek Medical Electronics .

Of course Guangdong Transtek Medical Electronics 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.