The five-year loss for Yihai International Holding (HKG:1579) shareholders likely driven by its shrinking earnings

Long term investing is the way to go, but that doesn't mean you should hold every stock forever. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Yihai International Holding Ltd. (HKG:1579) for half a decade as the share price tanked 86%. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

On a more encouraging note the company has added HK$417m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Looking back five years, both Yihai International Holding's share price and EPS declined; the latter at a rate of 2.5% per year. This reduction in EPS is less than the 33% annual reduction in the share price. This implies that the market was previously too optimistic about the stock.

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

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

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 Yihai International Holding the TSR over the last 5 years was -84%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Investors in Yihai International Holding had a tough year, with a total loss of 4.3% (including dividends), against a market gain of about 42%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 13% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. It's always interesting to track share price performance over the longer term. But to understand Yihai International Holding better, we need to consider many other factors. Take risks, for example - Yihai International Holding has 1 warning sign we think you should be aware of.

We will like Yihai International Holding better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.