Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd's (SHSE:600663) five-year decline in earnings translates into losses for shareholders

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But every investor is virtually certain to have both over-performing and under-performing stocks. At this point some shareholders may be questioning their investment in Shanghai Lujiazui Finance & Trade Zone Development Co.,Ltd. (SHSE:600663), since the last five years saw the share price fall 37%. On the other hand the share price has bounced 7.8% over the last week. But this could be related to the strong market, with stocks up around 6.7% in the same time.

While the last five years has been tough for Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

Check out our latest analysis for Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd's share price and EPS declined; the latter at a rate of 27% per year. This fall in the EPS is worse than the 9% 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 45.84 suggests that shareholders believe earnings will grow in the years ahead.

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd, it has a TSR of -26% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While it's certainly disappointing to see that Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd shares lost 9.1% throughout the year, that wasn't as bad as the market loss of 14%. Unfortunately, last year's performance may indicate unresolved challenges, given that it's worse than the annualised loss of 5% over the last half decade. Whilst Baron Rothschild does tell the investor "buy when there's blood in the streets, even if the blood is your own", buyers would need to examine the data carefully to be comfortable that the business itself is sound. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Shanghai Lujiazui Finance & Trade Zone DevelopmentLtd (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

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.