DHC SoftwareLtd (SZSE:002065) earnings and shareholder returns have been trending downwards for the last three years, but the stock rallies 3.8% this past week

Investors can earn very close to the average market return by buying an index fund. But in any given year a good portion of stocks will fall short of that. The DHC Software Co.,Ltd. (SZSE:002065) is such an example; over three years its share price is down 40% versus a marketdecline of 33%. And over the last year the share price fell 29%, so we doubt many shareholders are delighted.

While the last three years has been tough for DHC SoftwareLtd 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.

See our latest analysis for DHC SoftwareLtd

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, DHC SoftwareLtd's earnings per share (EPS) dropped by 23% each year. This fall in the EPS is worse than the 16% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines. With a P/E ratio of 52.51, it's fair to say the market sees a brighter future for the business.

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

It might be well worthwhile taking a look at our free report on DHC SoftwareLtd's earnings, revenue and cash flow.

A Different Perspective

We regret to report that DHC SoftwareLtd shareholders are down 28% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 17%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand DHC SoftwareLtd better, we need to consider many other factors. To that end, you should learn about the 4 warning signs we've spotted with DHC SoftwareLtd (including 1 which is a bit concerning) .

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.