It can certainly be frustrating when a stock does not perform as hoped. But when the market is down, you're bound to have some losers. While the Dongfeng Electronic Technology Co.,Ltd. (SHSE:600081) share price is down 26% in the last three years, the total return to shareholders (which includes dividends) was -21%. That's better than the market which declined 29% over the last three years. The more recent news is of little comfort, with the share price down 25% in a year. In the last ninety days we've seen the share price slide 31%. However, one could argue that the price has been influenced by the general market, which is down 17% in the same timeframe.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 three years that the share price fell, Dongfeng Electronic TechnologyLtd's earnings per share (EPS) dropped by 29% each year. This fall in the EPS is worse than the 10% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines. With a P/E ratio of 51.19, it's fair to say the market sees a brighter future for the business.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Dongfeng Electronic TechnologyLtd's TSR for the last 3 years was -21%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
While it's never nice to take a loss, Dongfeng Electronic TechnologyLtd shareholders can take comfort that , including dividends,their trailing twelve month loss of 22% wasn't as bad as the market loss of around 26%. Longer term investors wouldn't be so upset, since they would have made 3%, each year, over five years. 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. For example, we've discovered 3 warning signs for Dongfeng Electronic TechnologyLtd that you should be aware of before investing here.
But note: Dongfeng Electronic TechnologyLtd 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 Chinese 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.