The five-year shareholder returns and company earnings persist lower as Nine Dragons Paper (Holdings) (HKG:2689) stock falls a further 3.1% in past week

Generally speaking long term investing is the way to go. But along the way some stocks are going to perform badly. Zooming in on an example, the Nine Dragons Paper (Holdings) Limited (HKG:2689) share price dropped 60% in the last half decade. We certainly feel for shareholders who bought near the top. Even worse, it's down 15% in about a month, which isn't fun at all.

If the past week is anything to go by, investor sentiment for Nine Dragons Paper (Holdings) isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Nine Dragons Paper (Holdings) became profitable within the last five years. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.

In contrast to the share price, revenue has actually increased by 2.2% a year in the five year period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Nine Dragons Paper (Holdings) is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Nine Dragons Paper (Holdings)'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 Nine Dragons Paper (Holdings)'s TSR, which was a 55% drop over the last 5 years, was not as bad as the share price return.

A Different Perspective

Investors in Nine Dragons Paper (Holdings) had a tough year, with a total loss of 19%, against a market gain of about 22%. 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 9% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Nine Dragons Paper (Holdings) better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Nine Dragons Paper (Holdings) you should know about.

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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.