The past one-year earnings decline for Shanghai Haohai Biological Technology (HKG:6826) likely explains shareholders long-term losses

The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Unfortunately the Shanghai Haohai Biological Technology Co., Ltd. (HKG:6826) share price slid 16% over twelve months. That's disappointing when you consider the market returned 17%. On the bright side, the stock is actually up 13% in the last three years. On the other hand the share price has bounced 9.2% over the last week.

The recent uptick of 9.2% could be a positive sign of things to come, so let's take a look at historical fundamentals.

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To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Unhappily, Shanghai Haohai Biological Technology had to report a 14% decline in EPS over the last year. This proportional reduction in earnings per share isn't far from the 16% decrease in the share price. So it seems that the market sentiment has not changed much, despite the weak results. Instead, the change in the share price seems to reduction in earnings per share, alone.

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

We know that Shanghai Haohai Biological Technology has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Shanghai Haohai Biological Technology's financial health with this free report on its balance sheet.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Shanghai Haohai Biological Technology the TSR over the last 1 year was -13%, 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

Shanghai Haohai Biological Technology shareholders are down 13% for the year (even including dividends), but the market itself is up 17%. 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. On the bright side, long term shareholders have made money, with a gain of 4% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 1 warning sign for Shanghai Haohai Biological Technology that you should be aware of before investing here.

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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.