Legend Holdings (HKG:3396) sheds HK$660m, company earnings and investor returns have been trending downwards for past five years

We think intelligent long term investing is the way to go. But along the way some stocks are going to perform badly. Zooming in on an example, the Legend Holdings Corporation (HKG:3396) share price dropped 69% in the last half decade. That's an unpleasant experience for long term holders. Furthermore, it's down 11% in about a quarter. That's not much fun for holders.

With the stock having lost 3.6% 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 Legend Holdings

SWOT Analysis for Legend 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 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 five years over which the share price declined, Legend Holdings' earnings per share (EPS) dropped by 26% each year. This fall in the EPS is worse than the 21% compound annual share price fall. So the market may previously have expected a drop, or else it expects the situation will improve.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Legend Holdings' TSR for the last 5 years was -64%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 5.2% in the twelve months, Legend Holdings shareholders did even worse, losing 17% (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. However, the loss over the last year isn't as bad as the 10% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. It's always interesting to track share price performance over the longer term. But to understand Legend Holdings better, we need to consider many other factors. For example, we've discovered 3 warning signs for Legend Holdings that you should be aware of before investing here.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.