Hanhua Financial Holding's (HKG:3903) Stock Price Has Reduced 75% In The Past Five Years

Generally speaking long term investing is the way to go. But along the way some stocks are going to perform badly. For example the Hanhua Financial Holding Co., Ltd. (HKG:3903) share price dropped 75% over five years. We certainly feel for shareholders who bought near the top. And we doubt long term believers are the only worried holders, since the stock price has declined 37% over the last twelve months. The falls have accelerated recently, with the share price down 13% in the last three months.

Check out our latest analysis for Hanhua Financial Holding

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 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).

Looking back five years, both Hanhua Financial Holding's share price and EPS declined; the latter at a rate of 8.0% per 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.

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

It might be well worthwhile taking a look at our free report on Hanhua Financial Holding's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Hanhua Financial Holding's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Hanhua Financial Holding's TSR, which was a 69% drop over the last 5 years, was not as bad as the share price return.

A Different Perspective

While the broader market gained around 8.0% in the last year, Hanhua Financial Holding shareholders lost 37%. 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 11% 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Hanhua Financial Holding (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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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