Earnings growth of 0.8% over 3 years hasn't been enough to translate into positive returns for Shenzhen Sunlord ElectronicsLtd (SZSE:002138) shareholders

You can invest in an index fund if you want to make sure your returns approximately match the overall market. In contrast individual stocks will provide a wide range of possible returns, and may fall short. The Shenzhen Sunlord Electronics Co.,Ltd. (SZSE:002138) is such an example; over three years its share price is down 34% versus a marketdecline of 28%.

With the stock having lost 3.4% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

View our latest analysis for Shenzhen Sunlord ElectronicsLtd

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 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.

Although the share price is down over three years, Shenzhen Sunlord ElectronicsLtd actually managed to grow EPS by 2.4% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

It looks to us like the market was probably too optimistic around growth three years ago. Looking to other metrics might better explain the share price change.

The modest 1.2% dividend yield is unlikely to be guiding the market view of the stock. We note that, in three years, revenue has actually grown at a 5.5% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Shenzhen Sunlord ElectronicsLtd further; while we may be missing something on this analysis, there might also be an opportunity.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Shenzhen Sunlord ElectronicsLtd is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Shenzhen Sunlord ElectronicsLtd the TSR over the last 3 years was -32%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Although it hurts that Shenzhen Sunlord ElectronicsLtd returned a loss of 4.2% in the last twelve months, the broader market was actually worse, returning a loss of 20%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 5% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for Shenzhen Sunlord ElectronicsLtd that you should be aware of before investing here.

We will like Shenzhen Sunlord ElectronicsLtd 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