The past three-year earnings decline for Zhongyu Energy Holdings (HKG:3633) likely explains shareholders long-term losses

You can invest in an index fund if you want to make sure your returns approximately match the overall market. In contrast individual stocks will provide a wide range of possible returns, and may fall short. The Zhongyu Energy Holdings Limited (HKG:3633) is such an example; over three years its share price is down 24% versus a marketdecline of 19%.

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.

See our latest analysis for Zhongyu Energy Holdings

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Zhongyu Energy Holdings saw its EPS decline at a compound rate of 26% per year, over the last three years. In comparison the 9% compound annual share price decline isn't as bad as the EPS drop-off. So the market may not be too worried about the EPS figure, at the moment -- or it may have previously priced some of the drop in. This positive sentiment is also reflected in the generous P/E ratio of 76.31.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Zhongyu Energy Holdings' total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Zhongyu Energy Holdings' TSR, which was a 21% drop over the last 3 years, was not as bad as the share price return.

A Different Perspective

Although it hurts that Zhongyu Energy Holdings returned a loss of 3.6% in the last twelve months, the broader market was actually worse, returning a loss of 7.0%. Longer term investors wouldn't be so upset, since they would have made 0.9%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. It's always interesting to track share price performance over the longer term. But to understand Zhongyu Energy Holdings better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Zhongyu Energy Holdings (at least 2 which shouldn't be ignored) , and understanding them should be part of your investment process.

Zhongyu Energy Holdings is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider 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.