The three-year loss for Shanghai Yuyuan Tourist Mart (Group) (SHSE:600655) shareholders likely driven by its shrinking earnings

Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Shanghai Yuyuan Tourist Mart (Group) Co., Ltd. (SHSE:600655) shareholders, since the share price is down 52% in the last three years, falling well short of the market decline of around 27%. Shareholders have had an even rougher run lately, with the share price down 12% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 5.6% in the same timeframe.

While the stock has risen 4.8% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

Check out our latest analysis for Shanghai Yuyuan Tourist Mart (Group)

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 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.

Shanghai Yuyuan Tourist Mart (Group) saw its EPS decline at a compound rate of 21% per year, over the last three years. So do you think it's a coincidence that the share price has dropped 22% per year, a very similar rate to the EPS? We don't. So it seems like sentiment towards the stock hasn't changed all that much over time. It seems like the share price is reflecting the declining earnings per share.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Shanghai Yuyuan Tourist Mart (Group), it has a TSR of -46% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 17% in the twelve months, Shanghai Yuyuan Tourist Mart (Group) shareholders did even worse, losing 20% (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 4% 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 - Shanghai Yuyuan Tourist Mart (Group) has 3 warning signs (and 1 which is significant) we think you should know about.

We will like Shanghai Yuyuan Tourist Mart (Group) 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