Fujian Torch Electron Technology (SHSE:603678) sheds CN¥798m, company earnings and investor returns have been trending downwards for past three years

If you love investing in stocks you're bound to buy some losers. But the long term shareholders of Fujian Torch Electron Technology Co., Ltd. (SHSE:603678) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 70% drop in the share price over that period. And more recent buyers are having a tough time too, with a drop of 35% in the last year. And the share price decline continued over the last week, dropping some 7.3%.

Since Fujian Torch Electron Technology has shed CN¥798m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for Fujian Torch Electron Technology

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

Fujian Torch Electron Technology saw its EPS decline at a compound rate of 31% per year, over the last three years. This fall in EPS isn't far from the rate of share price decline, which was 33% per year. 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.

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Fujian Torch Electron Technology's earnings, revenue and cash flow.

A Different Perspective

While the broader market lost about 17% in the twelve months, Fujian Torch Electron Technology shareholders did even worse, losing 35% (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. On the bright side, long term shareholders have made money, with a gain of 1.8% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. For example, we've discovered 1 warning sign for Fujian Torch Electron Technology that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com