The main aim of stock picking is to find the market-beating stocks. But in any portfolio, there will be mixed results between individual stocks. So we wouldn't blame long term China Everbright Limited (HKG:165) shareholders for doubting their decision to hold, with the stock down 58% over a half decade. Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 5.2% in the same timeframe.

On a more encouraging note the company has added HK$708m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

View our latest analysis for China Everbright

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. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the five years over which the share price declined, China Everbright's earnings per share (EPS) dropped by 8.4% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 16% per year, over the period. This implies that the market is more cautious about the business these days. The less favorable sentiment is reflected in its current P/E ratio of 4.91.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that China Everbright has improved its bottom line lately, but is it going to grow revenue? Check if analysts think China Everbright will grow revenue in the future.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for China Everbright the TSR over the last 5 years was -45%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Although it hurts that China Everbright returned a loss of 14% in the last twelve months, the broader market was actually worse, returning a loss of 22%. Unfortunately, last year's performance may indicate unresolved challenges, given that it's worse than the annualised loss of 8% over the last half decade. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. 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. Even so, be aware that China Everbright is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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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.