Shareholders in Tang Palace (China) Holdings (HKG:1181) have lost 65%, as stock drops 12% this past week

Statistically speaking, long term investing is a profitable endeavour. But that doesn't mean long term investors can avoid big losses. For example the Tang Palace (China) Holdings Limited (HKG:1181) share price dropped 75% over five years. That's not a lot of fun for true believers. We also note that the stock has performed poorly over the last year, with the share price down 43%. Shareholders have had an even rougher run lately, with the share price down 23% in the last 90 days. But this could be related to the weak market, which is down 19% in the same period.

If the past week is anything to go by, investor sentiment for Tang Palace (China) Holdings isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

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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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over five years Tang Palace (China) Holdings' earnings per share dropped significantly, falling to a loss, with the share price also lower. At present it's hard to make valid comparisons between EPS and the share price. However, we can say we'd expect to see a falling share price in this scenario.

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

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Tang Palace (China) Holdings' earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for Tang Palace (China) Holdings the TSR over the last 5 years was -65%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 31% in the twelve months, Tang Palace (China) Holdings shareholders did even worse, losing 41% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 11% per year over five years. 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 instance, we've identified 3 warning signs for Tang Palace (China) Holdings (2 shouldn't be ignored) that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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. 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.