FIT Hon Teng (HKG:6088) sheds HK$709m, company earnings and investor returns have been trending downwards for past five years

Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held FIT Hon Teng Limited (HKG:6088) for five years would be nursing their metaphorical wounds since the share price dropped 74% in that time. And we doubt long term believers are the only worried holders, since the stock price has declined 59% over the last twelve months. More recently, the share price has dropped a further 21% in a month.

Since FIT Hon Teng has shed HK$709m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for FIT Hon Teng

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 five years over which the share price declined, FIT Hon Teng's earnings per share (EPS) dropped by 20% each year. Notably, the share price has fallen at 24% per year, fairly close to the change in the EPS. That suggests that the market sentiment around the company hasn't changed much over that time. Rather, the share price has approximately tracked EPS growth.

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

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

A Different Perspective

We regret to report that FIT Hon Teng shareholders are down 59% for the year. Unfortunately, that's worse than the broader market decline of 20%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 12% 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. It's always interesting to track share price performance over the longer term. But to understand FIT Hon Teng better, we need to consider many other factors. For example, we've discovered 1 warning sign for FIT Hon Teng that you should be aware of before investing here.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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.