Wuxi Honghui New Materials Technology (SZSE:002802) sheds CN¥224m, company earnings and investor returns have been trending downwards for past three years

Many investors define successful investing as beating the market average over the long term. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term Wuxi Honghui New Materials Technology Co., Ltd. (SZSE:002802) shareholders, since the share price is down 48% in the last three years, falling well short of the market decline of around 19%. Furthermore, it's down 26% in about a quarter. That's not much fun for holders.

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

See our latest analysis for Wuxi Honghui New Materials Technology

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 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.

Wuxi Honghui New Materials Technology saw its EPS decline at a compound rate of 14% per year, over the last three years. The share price decline of 20% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past.

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

It might be well worthwhile taking a look at our free report on Wuxi Honghui New Materials Technology's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Wuxi Honghui New Materials Technology's TSR for the last 3 years was -44%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market lost about 15% in the twelve months, Wuxi Honghui New Materials Technology shareholders did even worse, losing 17% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. 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 Wuxi Honghui New Materials Technology better, we need to consider many other factors. Take risks, for example - Wuxi Honghui New Materials Technology has 2 warning signs (and 1 which is significant) we think you should know about.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.