Generally speaking long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. For example the Suzhou Gold Mantis Construction Decoration Co., Ltd. (SZSE:002081) share price dropped 68% over five years. That is extremely sub-optimal, to say the least. And it's not just long term holders hurting, because the stock is down 31% in the last year. The falls have accelerated recently, with the share price down 10% in the last three months. Of course, this share price action may well have been influenced by the 4.1% decline in the broader market, throughout the period.

With the stock having lost 5.9% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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).

Looking back five years, both Suzhou Gold Mantis Construction Decoration's share price and EPS declined; the latter at a rate of 15% per year. This reduction in EPS is less than the 20% annual reduction in the share price. This implies that the market was previously too optimistic about the stock. The less favorable sentiment is reflected in its current P/E ratio of 8.76.

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

It might be well worthwhile taking a look at our free report on Suzhou Gold Mantis Construction Decoration's 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. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Suzhou Gold Mantis Construction Decoration, it has a TSR of -65% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We regret to report that Suzhou Gold Mantis Construction Decoration shareholders are down 29% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 13%. 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 11% 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. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Suzhou Gold Mantis Construction Decoration , and understanding them should be part of your investment process.

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 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.