COFCO Joycome Foods (HKG:1610) sheds HK$412m, company earnings and investor returns have been trending downwards for past three years

Investing in stocks inevitably means buying into some companies that perform poorly. But long term COFCO Joycome Foods Limited (HKG:1610) shareholders have had a particularly rough ride in the last three year. Regrettably, they have had to cope with a 57% drop in the share price over that period. The last week also saw the share price slip down another 5.9%.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

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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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

COFCO Joycome Foods saw its EPS decline at a compound rate of 31% per year, over the last three years. This fall in the EPS is worse than the 24% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.

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

We know that COFCO Joycome Foods has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between COFCO Joycome Foods' total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. COFCO Joycome Foods hasn't been paying dividends, but its TSR of -54% exceeds its share price return of -57%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

COFCO Joycome Foods shareholders are down 13% for the year, but the market itself is up 36%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.5% 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. It's always interesting to track share price performance over the longer term. But to understand COFCO Joycome Foods better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with COFCO Joycome Foods (at least 2 which make us uncomfortable) , and understanding them should be part of your investment process.

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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.