Yantai Dongcheng Pharmaceutical GroupLtd (SZSE:002675) stock falls 3.3% in past week as three-year earnings and shareholder returns continue downward trend

As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Yantai Dongcheng Pharmaceutical Group Co.,Ltd. (SZSE:002675) shareholders have had that experience, with the share price dropping 35% in three years, versus a market decline of about 21%. Furthermore, it's down 11% in about a quarter. That's not much fun for holders.

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 Yantai Dongcheng Pharmaceutical GroupLtd

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Yantai Dongcheng Pharmaceutical GroupLtd's earnings per share (EPS) dropped by 19% each year. In comparison the 13% compound annual share price decline isn't as bad as the EPS drop-off. So the market may not be too worried about the EPS figure, at the moment -- or it may have previously priced some of the drop in. This positive sentiment is also reflected in the generous P/E ratio of 49.96.

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

Dive deeper into Yantai Dongcheng Pharmaceutical GroupLtd's key metrics by checking this interactive graph of Yantai Dongcheng Pharmaceutical GroupLtd'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. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Yantai Dongcheng Pharmaceutical GroupLtd's TSR for the last 3 years was -33%, 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

We regret to report that Yantai Dongcheng Pharmaceutical GroupLtd shareholders are down 16% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 10%. 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 4% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Yantai Dongcheng Pharmaceutical GroupLtd better, we need to consider many other factors. Even so, be aware that Yantai Dongcheng Pharmaceutical GroupLtd is showing 1 warning sign in our investment analysis , you should know about...

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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.