For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term China Tobacco International (HK) Company Limited (HKG:6055) shareholders, since the share price is down 40% in the last three years, falling well short of the market decline of around 1.5%. And over the last year the share price fell 29%, so we doubt many shareholders are delighted. Furthermore, it's down 11% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 6.9% decline in the broader market, throughout the period.

If the past week is anything to go by, investor sentiment for China Tobacco International (HK) isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for China Tobacco International (HK)

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

During the unfortunate three years of share price decline, China Tobacco International (HK) actually saw its earnings per share (EPS) improve by 25% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The modest 1.5% dividend yield is unlikely to be guiding the market view of the stock. We think that the revenue decline over three years, at a rate of 9.1% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that China Tobacco International (HK) has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts

A Different Perspective

China Tobacco International (HK) shareholders are down 28% for the year (even including dividends), falling short of the market return. The market shed around 21%, no doubt weighing on the stock price. Shareholders have lost 11% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. It's always interesting to track share price performance over the longer term. But to understand China Tobacco International (HK) better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with China Tobacco International (HK) , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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.