Investors three-year losses continue as Shandong Hiking InternationalLtd (SHSE:600735) dips a further 11% this week, earnings continue to decline

Many investors define successful investing as beating the market average over the long term. 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 Shandong Hiking International Co.,Ltd (SHSE:600735) shareholders, since the share price is down 41% in the last three years, falling well short of the market decline of around 21%. The more recent news is of little comfort, with the share price down 30% in a year.

If the past week is anything to go by, investor sentiment for Shandong Hiking InternationalLtd isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

View our latest analysis for Shandong Hiking InternationalLtd

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).

Shandong Hiking InternationalLtd saw its EPS decline at a compound rate of 1.2% per year, over the last three years. This reduction in EPS is slower than the 16% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy.

The company's earnings per share (over time) is 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. Dive deeper into the earnings by checking this interactive graph of Shandong Hiking InternationalLtd's earnings, revenue and cash flow.

A Different Perspective

While the broader market lost about 9.6% in the twelve months, Shandong Hiking InternationalLtd 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% per year over five years. 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. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Shandong Hiking InternationalLtd (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

Of course Shandong Hiking InternationalLtd 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.