The five-year shareholder returns and company earnings persist lower as Datang Environment Industry Group (HKG:1272) stock falls a further 21% in past week

Generally speaking long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. Zooming in on an example, the Datang Environment Industry Group Co., Ltd. (HKG:1272) share price dropped 73% in the last half decade. That's an unpleasant experience for long term holders. We also note that the stock has performed poorly over the last year, with the share price down 25%.

If the past week is anything to go by, investor sentiment for Datang Environment Industry Group isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

Check out our latest analysis for Datang Environment Industry Group

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

During five years of share price growth, Datang Environment Industry Group moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.

The most recent dividend was actually lower than it was in the past, so that may have sent the share price lower. The revenue decline of about 9.6% per year might also encourage sellers.

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

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on Datang Environment Industry Group's earnings, revenue and cash flow.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Datang Environment Industry Group, it has a TSR of -64% 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

Investors in Datang Environment Industry Group had a tough year, with a total loss of 20% (including dividends), against a market gain of about 2.3%. 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. 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 example, we've discovered 3 warning signs for Datang Environment Industry Group (2 can't be ignored!) that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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