In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term CITIC Resources Holdings Limited (HKG:1205) shareholders have had that experience, with the share price dropping 35% in three years, versus a market decline of about 5.2%. More recently, the share price has dropped a further 14% in a month.

Since CITIC Resources Holdings has shed HK$393m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

Although the share price is down over three years, CITIC Resources Holdings actually managed to grow EPS by 1.8% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.

It looks to us like the market was probably too optimistic around growth three years ago. Looking to other metrics might better explain the share price change.

We note that the dividend has declined - a likely contributor to the share price drop. In contrast it does not seem particularly likely that the revenue levels are a concern for investors.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. In the case of CITIC Resources Holdings, it has a TSR of -15% for the last 3 years. 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

CITIC Resources Holdings shareholders gained a total return of 12% during the year. But that return falls short of the market. But at least that's still a gain! Over five years the TSR has been a reduction of 0.8% per year, over five years. It could well be that the business is stabilizing. 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. Even so, be aware that CITIC Resources Holdings is showing 3 warning signs in our investment analysis , you should know about...

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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