Hopson Development Holdings (HKG:754) stock falls 4.1% in past week as three-year earnings and shareholder returns continue downward trend

As every investor would know, not every swing hits the sweet spot. But really bad investments should be rare. So consider, for a moment, the misfortune of Hopson Development Holdings Limited (HKG:754) investors who have held the stock for three years as it declined a whopping 84%. That would certainly shake our confidence in the decision to own the stock. And more recent buyers are having a tough time too, with a drop of 33% in the last year. The falls have accelerated recently, with the share price down 28% in the last three months. We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

With the stock having lost 4.1% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

View our latest analysis for Hopson Development Holdings

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.

Hopson Development Holdings saw its EPS decline at a compound rate of 40% per year, over the last three years. This fall in EPS isn't far from the rate of share price decline, which was 45% per year. That suggests that the market sentiment around the company hasn't changed much over that time, despite the disappointment. In this case, it seems that the EPS is guiding the share price.

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

Dive deeper into Hopson Development Holdings' key metrics by checking this interactive graph of Hopson Development Holdings's earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 8.7% in the last year, Hopson Development Holdings shareholders lost 33%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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 Hopson Development Holdings (at least 2 which are a bit unpleasant) , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.