Generally speaking long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. For example the Sihuan Pharmaceutical Holdings Group Ltd. (HKG:460) share price dropped 66% over five years. That is extremely sub-optimal, to say the least. And some of the more recent buyers are probably worried, too, with the stock falling 58% in the last year. Unfortunately the share price momentum is still quite negative, with prices down 13% in thirty days. However, we note the price may have been impacted by the broader market, which is down 7.6% in the same time period.

Since Sihuan Pharmaceutical Holdings Group has shed CN¥560m 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 Sihuan Pharmaceutical Holdings Group

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.

During the five years over which the share price declined, Sihuan Pharmaceutical Holdings Group's earnings per share (EPS) dropped by 23% each year. The share price decline of 19% per year isn't as bad as the EPS decline. The relatively muted share price reaction might be because the market expects the business to turn around.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

Dive deeper into Sihuan Pharmaceutical Holdings Group's key metrics by checking this interactive graph of Sihuan Pharmaceutical Holdings Group's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. As it happens, Sihuan Pharmaceutical Holdings Group's TSR for the last 5 years was -52%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market lost about 17% in the twelve months, Sihuan Pharmaceutical Holdings Group shareholders did even worse, losing 52% (even including dividends). 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 9% per year over five years. 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. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for Sihuan Pharmaceutical Holdings Group you should know about.

Of course Sihuan Pharmaceutical Holdings Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.