Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Shanghai Foreign Service Holding Group Co., Ltd. (SHSE:600662) shareholders have had that experience, with the share price dropping 41% in three years, versus a market decline of about 11%. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days. But this could be related to the weak market, which is down 8.8% in the same period.

After losing 3.7% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

See our latest analysis for Shanghai Foreign Service Holding Group

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Although the share price is down over three years, Shanghai Foreign Service Holding Group actually managed to grow EPS by 77% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). 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 company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. There doesn't seem to be any clear correlation between the fundamental business metrics and the share price. That could mean that the stock was previously overrated, or it could spell opportunity now.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We know that Shanghai Foreign Service Holding Group has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Shanghai Foreign Service Holding Group's TSR for the last 3 years was -38%, 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 it's certainly disappointing to see that Shanghai Foreign Service Holding Group shares lost 1.0% throughout the year, that wasn't as bad as the market loss of 6.5%. Longer term investors wouldn't be so upset, since they would have made 6%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand Shanghai Foreign Service Holding Group better, we need to consider many other factors. For example, we've discovered 2 warning signs for Shanghai Foreign Service Holding Group that you should be aware of before investing here.

We will like Shanghai Foreign Service Holding Group better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese 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.