Pulling back 5.7% this week, Kowloon Development's HKG:34) five-year decline in earnings may be coming into investors focus

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But if you pick the right individual stocks, you could make more -- or less -- than that. While the Kowloon Development Company Limited (HKG:34) share price is down 36% over half a decade, the total return to shareholders (which includes dividends) was 22%. And that total return actually beats the market decline of 6.0%. And it's not just long term holders hurting, because the stock is down 30% in the last year. Shareholders have had an even rougher run lately, with the share price down 19% in the last 90 days.

With the stock having lost 5.7% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

See our latest analysis for Kowloon Development

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, Kowloon Development's earnings per share (EPS) dropped by 11% each year. The share price decline of 9% 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.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. It might be well worthwhile taking a look at our free report on Kowloon Development'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. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Kowloon Development, it has a TSR of 22% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market lost about 17% in the twelve months, Kowloon Development shareholders did even worse, losing 22% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 4%, each year, over five years. 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. 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. Case in point: We've spotted 3 warning signs for Kowloon Development you should be aware of, and 2 of them don't sit too well with us.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.