Guangdong Zhongnan Iron and Steel (SZSE:000717) adds CN¥533m to market cap in the past 7 days, though investors from three years ago are still down 38%

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Guangdong Zhongnan Iron and Steel Co., Ltd. (SZSE:000717) shareholders have had that experience, with the share price dropping 42% in three years, versus a market decline of about 8.2%. In contrast, the stock price has popped 9.6% in the last thirty days. But this could be related to good market conditions, with stocks up around 6.9% during the period.

While the last three years has been tough for Guangdong Zhongnan Iron and Steel 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.

Check out our latest analysis for Guangdong Zhongnan Iron and Steel

Guangdong Zhongnan Iron and Steel wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

Over the last three years, Guangdong Zhongnan Iron and Steel's revenue dropped 7.7% per year. That's not what investors generally want to see. The stock has disappointed holders over the last three years, falling 12%, annualized. And with no profits, and weak revenue, are you surprised? Of course, sentiment could become too negative, and the company may actually be making progress to profitability.

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

Take a more thorough look at Guangdong Zhongnan Iron and Steel's financial health with this free report on its balance sheet.

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Guangdong Zhongnan Iron and Steel's total shareholder return (TSR) and its 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. Its history of dividend payouts mean that Guangdong Zhongnan Iron and Steel's TSR, which was a 38% drop over the last 3 years, was not as bad as the share price return.

A Different Perspective

It's good to see that Guangdong Zhongnan Iron and Steel has rewarded shareholders with a total shareholder return of 27% in the last twelve months. Notably the five-year annualised TSR loss of 5% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Guangdong Zhongnan Iron and Steel (of which 1 can't be ignored!) you should know about.

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.