Shareholders in Zhongsheng Group Holdings (HKG:881) are in the red if they invested three years ago

While it may not be enough for some shareholders, we think it is good to see the Zhongsheng Group Holdings Limited (HKG:881) share price up 15% in a single quarter. But the last three years have seen a terrible decline. Indeed, the share price is down a whopping 76% in the last three years. So it's about time shareholders saw some gains. Only time will tell if the company can sustain the turnaround.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

View our latest analysis for Zhongsheng Group 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 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 three years that the share price fell, Zhongsheng Group Holdings' earnings per share (EPS) dropped by 21% each year. This reduction in EPS is slower than the 38% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. This increased caution is also evident in the rather low P/E ratio, which is sitting at 8.94.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Zhongsheng Group Holdings' key metrics by checking this interactive graph of Zhongsheng Group Holdings'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 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. 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 -73%, 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

Investors in Zhongsheng Group Holdings had a tough year, with a total loss of 18% (including dividends), against a market gain of about 24%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 8% per year over five years. 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. For instance, we've identified 3 warning signs for Zhongsheng Group Holdings that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.