The three-year loss for China Water Affairs Group (HKG:855) shareholders likely driven by its shrinking earnings

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term China Water Affairs Group Limited (HKG:855) shareholders, since the share price is down 45% in the last three years, falling well short of the market decline of around 5.8%. But it's up 6.0% in the last week. But this could be related to the strong market, with stocks up around 7.8% in the same time.

The recent uptick of 6.0% could be a positive sign of things to come, so let's take a look at historical fundamentals.

See our latest analysis for China Water Affairs Group

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 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).

China Water Affairs Group saw its EPS decline at a compound rate of 4.0% per year, over the last three years. This reduction in EPS is slower than the 18% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 5.08.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Dive deeper into China Water Affairs Group's key metrics by checking this interactive graph of China Water Affairs Group's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for China Water Affairs Group the TSR over the last 3 years was -35%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

China Water Affairs Group shareholders gained a total return of 1.1% during the year. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 0.6% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. 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. Even so, be aware that China Water Affairs Group is showing 2 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

Of course China Water Affairs Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.