Shareholders in China Southern Power Grid Energy Storage (SHSE:600995) are in the red if they invested three years ago

For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term China Southern Power Grid Energy Storage Co., Ltd. (SHSE:600995) shareholders have had that experience, with the share price dropping 36% in three years, versus a market decline of about 6.7%.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

Check out our latest analysis for China Southern Power Grid Energy Storage

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

During the unfortunate three years of share price decline, China Southern Power Grid Energy Storage actually saw its earnings per share (EPS) improve by 144% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

The modest 0.8% dividend yield is unlikely to be guiding the market view of the stock. We think that the revenue decline over three years, at a rate of 9.1% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We know that China Southern Power Grid Energy Storage has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling China Southern Power Grid Energy Storage stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

China Southern Power Grid Energy Storage shareholders are up 4.8% for the year (even including dividends). Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 7% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. To that end, you should learn about the 2 warning signs we've spotted with China Southern Power Grid Energy Storage (including 1 which is potentially serious) .

Of course China Southern Power Grid Energy Storage may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.