This week we saw the Shenzhen Sunshine Laser & Electronics Technology Co., Ltd. (SZSE:300227) share price climb by 15%. But that doesn't change the fact that the returns over the last three years have been less than pleasing. In fact, the share price is down 30% in the last three years, falling well short of the market return.
Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.
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. 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.
Shenzhen Sunshine Laser & Electronics Technology saw its EPS decline at a compound rate of 20% per year, over the last three years. In comparison the 11% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines. This positive sentiment is also reflected in the generous P/E ratio of 45.19.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
A Different Perspective
While it's certainly disappointing to see that Shenzhen Sunshine Laser & Electronics Technology shares lost 6.1% throughout the year, that wasn't as bad as the market loss of 13%. Longer term investors wouldn't be so upset, since they would have made 2%, 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. It's always interesting to track share price performance over the longer term. But to understand Shenzhen Sunshine Laser & Electronics Technology better, we need to consider many other factors. To that end, you should learn about the 2 warning signs we've spotted with Shenzhen Sunshine Laser & Electronics Technology (including 1 which is significant) .
But note: Shenzhen Sunshine Laser & Electronics Technology 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.