Investors three-year losses continue as Shunfa Hengneng (SZSE:000631) dips a further 10% this week, earnings continue to decline

Investors are understandably disappointed when a stock they own declines in value. But no-one can make money on every call, especially in a declining market. The Shunfa Hengneng Corporation (SZSE:000631) is down 26% over three years, but the total shareholder return is -15% once you include the dividend. That's better than the market which declined 19% over the last three years. More recently, the share price has dropped a further 18% in a month. We do note, however, that the broader market is down 7.7% in that period, and this may have weighed on the share price.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

View our latest analysis for Shunfa Hengneng

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the three years that the share price fell, Shunfa Hengneng's earnings per share (EPS) dropped by 7.6% each year. This change in EPS is reasonably close to the 9% average annual decrease in the share price. So it seems like sentiment towards the stock hasn't changed all that much over time. Rather, the share price has approximately tracked EPS growth.

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

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized 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 Shunfa Hengneng'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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Shunfa Hengneng, it has a TSR of -15% for the last 3 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

Shunfa Hengneng shareholders are down 11% for the year (even including dividends), but the market itself is up 6.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 1.9%, each year, over five years. 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 Shunfa Hengneng better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Shunfa Hengneng (of which 2 are significant!) you should know about.

But note: Shunfa Hengneng may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.