As every investor would know, not every swing hits the sweet spot. But you have a problem if you face massive losses more than once in a while. So spare a thought for the long term shareholders of A-Living Smart City Services Co., Ltd. (HKG:3319); the share price is down a whopping 90% in the last three years. That would be a disturbing experience. And over the last year the share price fell 59%, so we doubt many shareholders are delighted. And the share price decline continued over the last week, dropping some 8.5%. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

Since A-Living Smart City Services has shed HK$426m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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. 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, A-Living Smart City Services actually saw its earnings per share (EPS) improve by 1.7% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

It's pretty reasonable to suspect the market was previously to bullish on the stock, and has since moderated expectations. However, taking a look at other business metrics might shed a bit more light on the share price action.

The modest 1.7% dividend yield is unlikely to be guiding the market view of the stock. We note that, in three years, revenue has actually grown at a 22% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating A-Living Smart City Services further; while we may be missing something on this analysis, there might also be an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

A-Living Smart City Services is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

While the broader market lost about 5.8% in the twelve months, A-Living Smart City Services shareholders did even worse, losing 59% (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 12% 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. Take risks, for example - A-Living Smart City Services has 1 warning sign we think 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 Hong Kong 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.