Midea Real Estate Holding's (HKG:3990) earnings have declined over three years, contributing to shareholders 24% loss

Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term Midea Real Estate Holding Limited (HKG:3990) shareholders, since the share price is down 43% in the last three years, falling well short of the market return of around 25%. Shareholders have had an even rougher run lately, with the share price down 25% in the last 90 days.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

View our latest analysis for Midea Real Estate Holding

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

During the three years that the share price fell, Midea Real Estate Holding's earnings per share (EPS) dropped by 9.2% each year. The share price decline of 17% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. The less favorable sentiment is reflected in its current P/E ratio of 3.83.

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

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Midea Real Estate Holding's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Midea Real Estate Holding the TSR over the last 3 years was -24%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

The last twelve months weren't great for Midea Real Estate Holding shares, which performed worse than the market, costing holders 15%, including dividends. The market shed around 3.8%, no doubt weighing on the stock price. Shareholders have lost 7% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. 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. Take risks, for example - Midea Real Estate Holding has 4 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

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.