Sunwave CommunicationsLtd (SZSE:002115) stock falls 10% in past week as five-year earnings and shareholder returns continue downward trend

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But even the best stock picker will only win with some selections. So we wouldn't blame long term Sunwave Communications Co.Ltd (SZSE:002115) shareholders for doubting their decision to hold, with the stock down 47% over a half decade. And it's not just long term holders hurting, because the stock is down 36% in the last year. The falls have accelerated recently, with the share price down 23% in the last three months.

Since Sunwave CommunicationsLtd has shed CN¥394m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Sunwave CommunicationsLtd

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.

Looking back five years, both Sunwave CommunicationsLtd's share price and EPS declined; the latter at a rate of 27% per year. This fall in the EPS is worse than the 12% compound annual share price fall. The relatively muted share price reaction might be because the market expects the business to turn around. The high P/E ratio of 66.53 suggests that shareholders believe earnings will grow in the years ahead.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

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

A Different Perspective

While the broader market lost about 17% in the twelve months, Sunwave CommunicationsLtd shareholders did even worse, losing 36%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 8% 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. 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. To that end, you should be aware of the 2 warning signs we've spotted with Sunwave CommunicationsLtd .

We will like Sunwave CommunicationsLtd better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com