Investors five-year losses continue as Central China Securities (HKG:1375) dips a further 7.5% this week, earnings continue to decline

We think intelligent long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. For example the Central China Securities Co., Ltd. (HKG:1375) share price dropped 63% over five years. We certainly feel for shareholders who bought near the top. Even worse, it's down 9.0% in about a month, which isn't fun at all.

After losing 7.5% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

Check out our latest analysis for Central China Securities

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, Central China Securities' earnings per share (EPS) dropped by 27% each year. The share price decline of 18% per year isn't as bad as the EPS decline. The relatively muted share price reaction might be because the market expects the business to turn around.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Central China Securities' 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. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Central China Securities' TSR for the last 5 years was -60%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Central China Securities had a tough year, with a total loss of 13% (including dividends), against a market gain of about 4.7%. 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, longer term shareholders are suffering worse, given the loss of 10% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It's always interesting to track share price performance over the longer term. But to understand Central China Securities better, we need to consider many other factors. For instance, we've identified 4 warning signs for Central China Securities (3 make us uncomfortable) 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.

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.