China Merchants Shekou Industrial Zone Holdings (SZSE:001979) sheds CN¥3.1b, company earnings and investor returns have been trending downwards for past five years

Generally speaking long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. To wit, the China Merchants Shekou Industrial Zone Holdings Co., Ltd. (SZSE:001979) share price managed to fall 58% over five long years. That is extremely sub-optimal, to say the least. And we doubt long term believers are the only worried holders, since the stock price has declined 27% over the last twelve months. Unfortunately the share price momentum is still quite negative, with prices down 12% in thirty days.

Since China Merchants Shekou Industrial Zone Holdings has shed CN¥3.1b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for China Merchants Shekou Industrial Zone Holdings

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 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 five years over which the share price declined, China Merchants Shekou Industrial Zone Holdings' earnings per share (EPS) dropped by 14% each year. Notably, the share price has fallen at 16% per year, fairly close to the change in the EPS. This suggests that market participants have not changed their view of the company all that much. Rather, the share price change has reflected changes in earnings per share.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that China Merchants Shekou Industrial Zone Holdings has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, China Merchants Shekou Industrial Zone Holdings' TSR for the last 5 years was -50%, 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

While the broader market lost about 17% in the twelve months, China Merchants Shekou Industrial Zone Holdings shareholders did even worse, losing 27% (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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9% 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. Take risks, for example - China Merchants Shekou Industrial Zone Holdings has 3 warning signs (and 1 which is concerning) we think you should know about.

Of course China Merchants Shekou Industrial Zone Holdings may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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