Union OptechLtd (SZSE:300691) sheds CN¥377m, company earnings and investor returns have been trending downwards for past five years

The main aim of stock picking is to find the market-beating stocks. But every investor is virtually certain to have both over-performing and under-performing stocks. So we wouldn't blame long term Union Optech Co.,Ltd. (SZSE:300691) shareholders for doubting their decision to hold, with the stock down 18% over a half decade. Shareholders have had an even rougher run lately, with the share price down 10% in the last 90 days. Of course, this share price action may well have been influenced by the 6.5% decline in the broader market, throughout the period.

With the stock having lost 9.0% 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 Union OptechLtd

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Looking back five years, both Union OptechLtd's share price and EPS declined; the latter at a rate of 11% per year. The share price decline of 4% per year isn't as bad as the EPS decline. So the market may previously have expected a drop, or else it expects the situation will improve. The high P/E ratio of 70.40 suggests that shareholders believe earnings will grow in the years ahead.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Dive deeper into Union OptechLtd's key metrics by checking this interactive graph of Union OptechLtd's earnings, revenue and cash flow.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Union OptechLtd, it has a TSR of -15% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Union OptechLtd shareholders are down 14% over twelve months (even including dividends), which isn't far from the market return of -14%. So last year was actually even worse than the last five years, which cost shareholders 3% per year. Weak performance over the long term usually destroys market confidence in a stock, but bargain hunters may want to take a closer look for signs of a turnaround. 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 - Union OptechLtd has 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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