Strong week for Shanxi Meijin EnergyLtd (SZSE:000723) shareholders doesn't alleviate pain of three-year loss

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. Long term Shanxi Meijin Energy Co.,Ltd. (SZSE:000723) shareholders know that all too well, since the share price is down considerably over three years. So they might be feeling emotional about the 70% share price collapse, in that time. The more recent news is of little comfort, with the share price down 28% in a year. Furthermore, it's down 11% in about a quarter. That's not much fun for holders.

While the last three years has been tough for Shanxi Meijin EnergyLtd 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 Shanxi Meijin EnergyLtd

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over the three years that the share price declined, Shanxi Meijin EnergyLtd's earnings per share (EPS) dropped significantly, falling to a loss. Since the company has fallen to a loss making position, it's hard to compare the change in EPS with the share price change. However, we can say we'd expect to see a falling share price in this scenario.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on Shanxi Meijin EnergyLtd's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Shanxi Meijin EnergyLtd shareholders are down 28% for the year, but the market itself is up 24%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 9% 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. It's always interesting to track share price performance over the longer term. But to understand Shanxi Meijin EnergyLtd better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Shanxi Meijin EnergyLtd , and understanding them should be part of your investment process.

Of course Shanxi Meijin EnergyLtd 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.