The three-year earnings decline is not helping Shenma IndustryLtd's (SHSE:600810 share price, as stock falls another 5.7% in past week

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. We regret to report that long term Shenma Industry Co.Ltd (SHSE:600810) shareholders have had that experience, with the share price dropping 42% in three years, versus a market decline of about 19%. Unfortunately the share price momentum is still quite negative, with prices down 8.5% in thirty days. However, we note the price may have been impacted by the broader market, which is down 8.8% in the same time period.

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

View our latest analysis for Shenma IndustryLtd

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Shenma IndustryLtd became profitable within the last five years. We would usually expect to see the share price rise as a result. So given the share price is down it's worth checking some other metrics too.

With a rather small yield of just 1.8% we doubt that the stock's share price is based on its dividend. The company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. We're not entirely sure why the share price is dropped, but it does seem likely investors have become less optimistic about the business.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We know that Shenma IndustryLtd has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Shenma IndustryLtd the TSR over the last 3 years was -36%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Shenma IndustryLtd shareholders are up 4.8% for the year (even including dividends). Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it's actually better than the average return of 2% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. It's always interesting to track share price performance over the longer term. But to understand Shenma IndustryLtd better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Shenma IndustryLtd , and understanding them should be part of your investment process.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.