Investors three-year losses continue as Churchill China (LON:CHH) dips a further 10% this week, earnings continue to decline

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the long term shareholders of Churchill China plc (LON:CHH) have had an unfortunate run in the last three years. So they might be feeling emotional about the 73% share price collapse, in that time. And over the last year the share price fell 61%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 22% in the last three months.

With the stock having lost 10% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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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.

Churchill China saw its EPS decline at a compound rate of 9.5% per year, over the last three years. The share price decline of 35% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 7.49.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

This free interactive report on Churchill China's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Churchill China, it has a TSR of -69% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Churchill China had a tough year, with a total loss of 59% (including dividends), against a market gain of about 17%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% over the last half decade. 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. 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 instance, we've identified 4 warning signs for Churchill China (1 is potentially serious) that you should be aware of.

But note: Churchill China may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British 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.