ValiantLtd (SZSE:002643) sheds CN¥530m, company earnings and investor returns have been trending downwards for past three years

The truth is that if you invest for long enough, you're going to end up with some losing stocks. But the long term shareholders of Valiant Co.,Ltd (SZSE:002643) have had an unfortunate run in the last three years. Unfortunately, they have held through a 59% decline in the share price in that time. The more recent news is of little comfort, with the share price down 33% in a year. More recently, the share price has dropped a further 20% in a month. However, we note the price may have been impacted by the broader market, which is down 9.8% in the same time period.

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

Check out our latest analysis for ValiantLtd

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...' 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.

During the three years that the share price fell, ValiantLtd's earnings per share (EPS) dropped by 10% each year. This reduction in EPS is slower than the 26% annual reduction in the share price. So it seems the market was too confident about the business, in the past.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

This free interactive report on ValiantLtd's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, ValiantLtd's TSR for the last 3 years was -57%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Investors in ValiantLtd had a tough year, with a total loss of 31% (including dividends), against a market gain of about 6.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 6% 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 ValiantLtd better, we need to consider many other factors. For instance, we've identified 1 warning sign for ValiantLtd that you should be aware of.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.