The three-year shareholder returns and company earnings persist lower as China Shengmu Organic Milk (HKG:1432) stock falls a further 10% in past week

The truth is that if you invest for long enough, you're going to end up with some losing stocks. Long term China Shengmu Organic Milk Limited (HKG:1432) shareholders know that all too well, since the share price is down considerably over three years. Regrettably, they have had to cope with a 71% drop in the share price over that period. And over the last year the share price fell 35%, so we doubt many shareholders are delighted. Shareholders have had an even rougher run lately, with the share price down 23% in the last 90 days.

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

Check out our latest analysis for China Shengmu Organic Milk

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

During the three years that the share price fell, China Shengmu Organic Milk's earnings per share (EPS) dropped by 13% each year. This reduction in EPS is slower than the 34% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. The less favorable sentiment is reflected in its current P/E ratio of 7.97.

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

This free interactive report on China Shengmu Organic Milk's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market lost about 20% in the twelve months, China Shengmu Organic Milk shareholders did even worse, losing 33% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 6% 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. Even so, be aware that China Shengmu Organic Milk is showing 3 warning signs in our investment analysis , you should know about...

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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.