Strong week for Lotte Chemical (KRX:011170) shareholders doesn't alleviate pain of five-year loss

Generally speaking long term investing is the way to go. But no-one is immune from buying too high. For example, after five long years the Lotte Chemical Corporation (KRX:011170) share price is a whole 69% lower. That's not a lot of fun for true believers. And some of the more recent buyers are probably worried, too, with the stock falling 22% in the last year.

On a more encouraging note the company has added ₩160b 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.

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Given that Lotte Chemical didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. Shareholders of unprofitable companies usually desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

Over five years, Lotte Chemical grew its revenue at 8.6% per year. That's a pretty good rate for a long time period. The share price return isn't so respectable with an annual loss of 11% over the period. It seems probably that the business has failed to live up to initial expectations. A pessimistic market can create opportunities.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Lotte Chemical is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Lotte Chemical will earn in the future (free analyst consensus estimates)

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Lotte Chemical's TSR for the last 5 years was -64%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market gained around 45% in the last year, Lotte Chemical shareholders lost 20% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% 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. 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. Even so, be aware that Lotte Chemical is showing 1 warning sign in our investment analysis , you should know about...

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.