The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Unfortunately the Nine Dragons Paper (Holdings) Limited (HKG:2689) share price slid 39% over twelve months. That contrasts poorly with the market decline of 21%. However, the longer term returns haven't been so bad, with the stock down 6.2% in the last three years.

Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.

Check out our latest analysis for Nine Dragons Paper (Holdings)

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.

Unfortunately Nine Dragons Paper (Holdings) reported an EPS drop of 0.3% for the last year. This reduction in EPS is not as bad as the 39% share price fall. So it seems the market was too confident about the business, a year ago. The less favorable sentiment is reflected in its current P/E ratio of 4.43.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Dive deeper into Nine Dragons Paper (Holdings)'s key metrics by checking this interactive graph of Nine Dragons Paper (Holdings)'s earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Nine Dragons Paper (Holdings), it has a TSR of -35% for the last 1 year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market lost about 21% in the twelve months, Nine Dragons Paper (Holdings) shareholders did even worse, losing 35% (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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. 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. For example, we've discovered 2 warning signs for Nine Dragons Paper (Holdings) (1 doesn't sit too well with us!) that you should be aware of before investing here.

But note: Nine Dragons Paper (Holdings) may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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