Zhongyuan Bank (HKG:1216) sheds HK$548m, company earnings and investor returns have been trending downwards for past five years

Long term investing works well, but it doesn't always work for each individual stock. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding Zhongyuan Bank Co., Ltd. (HKG:1216) during the five years that saw its share price drop a whopping 75%.

After losing 4.4% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the five years over which the share price declined, Zhongyuan Bank's earnings per share (EPS) dropped by 9.6% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 24% per year, over the period. So it seems the market was too confident about the business, in the past. The low P/E ratio of 3.99 further reflects this reticence.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Different Perspective

Zhongyuan Bank shareholders gained a total return of 1.6% during the year. Unfortunately this falls short of the market return. But at least that's still a gain! Over five years the TSR has been a reduction of 12% per year, over five years. So this might be a sign the business has turned its fortunes around. 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 instance, we've identified 2 warning signs for Zhongyuan Bank (1 is a bit concerning) that you should be aware of.

But note: Zhongyuan Bank 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 Hong Kong exchanges.

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

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.