Lee & Man Paper Manufacturing (HKG:2314) sheds HK$431m, company earnings and investor returns have been trending downwards for past five years

We think intelligent long term investing is the way to go. But no-one is immune from buying too high. For example the Lee & Man Paper Manufacturing Limited (HKG:2314) share price dropped 68% over five years. That is extremely sub-optimal, to say the least. Furthermore, it's down 12% in about a quarter. That's not much fun for holders. But this could be related to the weak market, which is down 7.5% in the same period.

Since Lee & Man Paper Manufacturing has shed HK$431m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Lee & Man Paper Manufacturing

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Lee & Man Paper Manufacturing's earnings per share (EPS) dropped by 34% each year. This fall in the EPS is worse than the 20% compound annual share price fall. So investors might expect EPS to bounce back -- or they may have previously foreseen the EPS decline.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It might be well worthwhile taking a look at our free report on Lee & Man Paper Manufacturing's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Lee & Man Paper Manufacturing's TSR for the last 5 years was -60%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market gained around 10% in the last year, Lee & Man Paper Manufacturing shareholders lost 12% (even including dividends). 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. However, the loss over the last year isn't as bad as the 10% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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 Lee & Man Paper Manufacturing is showing 2 warning signs in our investment analysis , and 1 of those is significant...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.