Hotai Finance's (TWSE:6592) earnings have declined over year, contributing to shareholders 23% loss

The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Hotai Finance Co., Ltd. (TWSE:6592) shareholders over the last year, as the share price declined 25%. That falls noticeably short of the market return of around 26%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 14% in three years.

Although the past week has been more reassuring for shareholders, they're still in the red over the last year, so let's see if the underlying business has been responsible for the decline.

View our latest analysis for Hotai Finance

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Unfortunately Hotai Finance reported an EPS drop of 12% for the last year. The share price decline of 25% is actually more than the EPS drop. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock.

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

Dive deeper into Hotai Finance's key metrics by checking this interactive graph of Hotai Finance's earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 26% in the last year, Hotai Finance shareholders lost 23% (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. Longer term investors wouldn't be so upset, since they would have made 8%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. For instance, we've identified 2 warning signs for Hotai Finance (1 doesn't sit too well with us) that you should be aware of.

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 Taiwanese 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.