The five-year shareholder returns and company earnings persist lower as SFA Engineering (KOSDAQ:056190) stock falls a further 11% in past week

Statistically speaking, long term investing is a profitable endeavour. But no-one is immune from buying too high. Zooming in on an example, the SFA Engineering Corporation (KOSDAQ:056190) share price dropped 57% in the last half decade. We certainly feel for shareholders who bought near the top. And it's not just long term holders hurting, because the stock is down 34% in the last year. Shareholders have had an even rougher run lately, with the share price down 22% in the last 90 days.

If the past week is anything to go by, investor sentiment for SFA Engineering isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

View our latest analysis for SFA Engineering

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.

Looking back five years, both SFA Engineering's share price and EPS declined; the latter at a rate of 9.4% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 16% per year, over the period. 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 8.09.

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

We know that SFA Engineering has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of SFA Engineering, it has a TSR of -52% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in SFA Engineering had a tough year, with a total loss of 33% (including dividends), against a market gain of about 5.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9% over the last half decade. 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 1 warning sign for SFA Engineering that you should be aware of.

But note: SFA Engineering may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on South Korean 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.