Many investors define successful investing as beating the market average over the long term. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited (HKG:874) shareholders have had that experience, with the share price dropping 37% in three years, versus a market decline of about 1.5%. On top of that, the share price is down 6.7% in the last week. But this could be related to the soft market, which is down about 3.6% in the same period.

Since Guangzhou Baiyunshan Pharmaceutical Holdings has shed CN¥2.4b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Guangzhou Baiyunshan Pharmaceutical Holdings

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Guangzhou Baiyunshan Pharmaceutical Holdings saw its EPS decline at a compound rate of 0.4% per year, over the last three years. The share price decline of 14% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. This increased caution is also evident in the rather low P/E ratio, which is sitting at 7.47.

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on Guangzhou Baiyunshan Pharmaceutical Holdings' earnings, revenue and cash flow.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Guangzhou Baiyunshan Pharmaceutical Holdings the TSR over the last 3 years was -31%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While it's certainly disappointing to see that Guangzhou Baiyunshan Pharmaceutical Holdings shares lost 6.4% throughout the year, that wasn't as bad as the market loss of 21%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 1.5% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should be aware of the 1 warning sign we've spotted with Guangzhou Baiyunshan Pharmaceutical Holdings .

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 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.