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. Unfortunately, that's been the case for longer term Qingdao Rural Commercial Bank Co., Ltd. (SZSE:002958) shareholders, since the share price is down 51% in the last three years, falling well short of the market return of around 18%. The more recent news is of little comfort, with the share price down 25% in a year.

While the last three years has been tough for Qingdao Rural Commercial Bank shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

See our latest analysis for Qingdao Rural Commercial Bank

There is no denying that markets are sometimes efficient, but prices do not always reflect 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, Qingdao Rural Commercial Bank actually saw its earnings per share (EPS) improve by 1.8% 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. Looking to other metrics might better explain the share price change.

The company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. We're not entirely sure why the share price is dropped, but it does seem likely investors have become less optimistic about the business.

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

Take a more thorough look at Qingdao Rural Commercial Bank's financial health with this free report on its balance sheet.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Qingdao Rural Commercial Bank's TSR for the last 3 years was -46%, 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

Qingdao Rural Commercial Bank shareholders are down 23% for the year (even including dividends), falling short of the market return. Meanwhile, the broader market slid about 12%, likely weighing on the stock. The three-year loss of 14% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. 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 Qingdao Rural Commercial Bank better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Qingdao Rural Commercial Bank .

Of course Qingdao Rural Commercial Bank 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 CN exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.