The three-year underlying earnings growth at Lizhong Sitong Light Alloys Group (SZSE:300428) is promising, but the shareholders are still in the red over that time

Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Lizhong Sitong Light Alloys Group Co., Ltd. (SZSE:300428) shareholders have had that experience, with the share price dropping 34% in three years, versus a market decline of about 25%. And over the last year the share price fell 34%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 26% in the last three months. However, one could argue that the price has been influenced by the general market, which is down 16% in the same timeframe.

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

See our latest analysis for Lizhong Sitong Light Alloys Group

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Although the share price is down over three years, Lizhong Sitong Light Alloys Group actually managed to grow EPS by 14% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

The modest 0.8% dividend yield is unlikely to be guiding the market view of the stock. We note that, in three years, revenue has actually grown at a 14% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Lizhong Sitong Light Alloys Group more closely, as sometimes stocks fall unfairly. This could present an opportunity.

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

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. So it makes a lot of sense to check out what analysts think Lizhong Sitong Light Alloys Group will earn in the future (free profit forecasts).

A Different Perspective

While the broader market lost about 12% in the twelve months, Lizhong Sitong Light Alloys Group shareholders did even worse, losing 33% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 3% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Lizhong Sitong Light Alloys Group better, we need to consider many other factors. Even so, be aware that Lizhong Sitong Light Alloys Group is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.