The five-year loss for Changhae Ethanol (KOSDAQ:004650) shareholders likely driven by its shrinking earnings

This week we saw the Changhae Ethanol Co., Ltd. (KOSDAQ:004650) share price climb by 18%. But over the last half decade, the stock has not performed well. In fact, the share price is down 32%, which falls well short of the return you could get by buying an index fund.

On a more encouraging note the company has added ₩12b to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

Our free stock report includes 2 warning signs investors should be aware of before investing in Changhae Ethanol. Read for free now.

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. 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.

Changhae Ethanol became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics might give us a better handle on how its value is changing over time.

We note that the dividend has fallen in the last five years, so that may have contributed to the share price decline. The revenue decline of about 4.3% per year might also encourage sellers.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Changhae Ethanol, it has a TSR of -12% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Changhae Ethanol shareholders have received a total shareholder return of 20% over one year. And that does include the dividend. There's no doubt those recent returns are much better than the TSR loss of 2% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Changhae Ethanol (of which 1 is a bit unpleasant!) you should know about.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.