If You Had Bought Dongjiang Environmental's (HKG:895) Shares Five Years Ago You Would Be Down 44%

Dongjiang Environmental Company Limited (HKG:895) shareholders should be happy to see the share price up 21% in the last month. But that doesn't change the fact that the returns over the last five years have been less than pleasing. In fact, the share price is down 44%, which falls well short of the return you could get by buying an index fund.

Check out our latest analysis for Dongjiang Environmental

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 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, Dongjiang Environmental's earnings per share (EPS) dropped by 0.8% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 11% per year, over the period. This implies that the market is more cautious about the business these days.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

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

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Dongjiang Environmental the TSR over the last 5 years was -39%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Dongjiang Environmental had a tough year, with a total loss of 8.6% (including dividends), against a market gain of about 26%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn't as bad as the 7% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Dongjiang Environmental , and understanding them should be part of your investment process.

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

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This article by Simply Wall St is general in nature. 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.
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