Investors three-year losses continue as Zhongsheng Group Holdings (HKG:881) dips a further 5.6% this week, earnings continue to decline

As an investor, mistakes are inevitable. But really big losses can really drag down an overall portfolio. So consider, for a moment, the misfortune of Zhongsheng Group Holdings Limited (HKG:881) investors who have held the stock for three years as it declined a whopping 77%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. The more recent news is of little comfort, with the share price down 26% in a year.

Since Zhongsheng Group Holdings has shed HK$1.7b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

We've discovered 2 warning signs about Zhongsheng Group Holdings. View them for free.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the three years that the share price fell, Zhongsheng Group Holdings' earnings per share (EPS) dropped by 27% each year. This reduction in EPS is slower than the 39% annual reduction in the share price. 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 8.05.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It might be well worthwhile taking a look at our free report on Zhongsheng Group Holdings' 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. As it happens, Zhongsheng Group Holdings' TSR for the last 3 years was -74%, 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 gained around 18% in the last year, Zhongsheng Group Holdings shareholders lost 21% (even including dividends). 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 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. It's always interesting to track share price performance over the longer term. But to understand Zhongsheng Group Holdings better, we need to consider many other factors. For example, we've discovered 2 warning signs for Zhongsheng Group Holdings that you should be aware of before investing here.

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.