We think intelligent long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. Zooming in on an example, the Nine Dragons Paper (Holdings) Limited (HKG:2689) share price dropped 69% in the last half decade. That's an unpleasant experience for long term holders. And it's not just long term holders hurting, because the stock is down 48% in the last year. The falls have accelerated recently, with the share price down 24% in the last three months. But this could be related to the weak market, which is down 17% in the same period.

Since Nine Dragons Paper (Holdings) has shed CN¥4.8b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Nine Dragons Paper (Holdings)

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).

During the five years over which the share price declined, Nine Dragons Paper (Holdings)'s earnings per share (EPS) dropped by 5.8% each year. This reduction in EPS is less than the 21% annual reduction in the share price. This implies that the market is more cautious about the business these days. The low P/E ratio of 6.59 further reflects this reticence.

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

This free interactive report on Nine Dragons Paper (Holdings)'s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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 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. As it happens, Nine Dragons Paper (Holdings)'s TSR for the last 5 years was -61%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We regret to report that Nine Dragons Paper (Holdings) shareholders are down 45% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 23%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. 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. For instance, we've identified 3 warning signs for Nine Dragons Paper (Holdings) (1 is significant) that you should be aware of.

But note: Nine Dragons Paper (Holdings) 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 HK 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.