The five-year shareholder returns and company earnings persist lower as Great Eagle Holdings (HKG:41) stock falls a further 5.0% in past week

Statistically speaking, long term investing is a profitable endeavour. But unfortunately, some companies simply don't succeed. Zooming in on an example, the Great Eagle Holdings Limited (HKG:41) share price dropped 72% in the last half decade. That is extremely sub-optimal, to say the least. And it's not just long term holders hurting, because the stock is down 40% in the last year.

With the stock having lost 5.0% 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 Great Eagle Holdings

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).

Great Eagle 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.

The most recent dividend was actually lower than it was in the past, so that may have sent the share price lower. The revenue decline of 1.8% per year wouldn't have helped. So it seems weak revenue and dividend trends may have influenced the share price.

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

This free interactive report on Great Eagle Holdings' balance sheet strength is a great place to start, if you want to investigate the stock further.

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. As it happens, Great Eagle Holdings' 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 lost about 13% in the twelve months, Great Eagle Holdings shareholders did even worse, losing 36% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% 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. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Great Eagle Holdings (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

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.