New World Development (HKG:17) stock falls 7.3% in past week as five-year earnings and shareholder returns continue downward trend

Long term investing is the way to go, but that doesn't mean you should hold every stock forever. We really hate to see fellow investors lose their hard-earned money. Anyone who held New World Development Company Limited (HKG:17) for five years would be nursing their metaphorical wounds since the share price dropped 84% in that time. And it's not just long term holders hurting, because the stock is down 63% in the last year. Unfortunately the share price momentum is still quite negative, with prices down 21% in thirty days. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

If the past week is anything to go by, investor sentiment for New World Development isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

Check out our latest analysis for New World Development

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 New World Development's share price and EPS declined; the latter at a rate of 49% per year. The share price decline of 31% per year isn't as bad as the EPS decline. So investors might expect EPS to bounce back -- or they may have previously foreseen the EPS decline.

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 New World Development 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 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 New World Development the TSR over the last 5 years was -76%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in New World Development had a tough year, with a total loss of 57% (including dividends), against a market gain of about 1.1%. 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 12% 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. 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 3 warning signs for New World Development (2 are a bit concerning!) that you should be aware of before investing here.

We will like New World Development 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com