Investors can earn very close to the average market return by buying an index fund. But in any given year a good portion of stocks will fall short of that. Unfortunately, that's been the case for longer term Guangzhou KDT Machinery Co.,Ltd. (SZSE:002833) shareholders, since the share price is down 31% in the last three years, less than the market decline of around 19%. Unfortunately the share price momentum is still quite negative, with prices down 16% in thirty days. We do note, however, that the broader market is down 7.2% in that period, and this may have weighed on the share price.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 unfortunate three years of share price decline, Guangzhou KDT MachineryLtd actually saw its earnings per share (EPS) improve by 2.0% per year. 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, in three years, revenue has actually grown at a 8.2% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Guangzhou KDT MachineryLtd more closely, as sometimes stocks fall unfairly. This could present an opportunity.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

If you are thinking of buying or selling Guangzhou KDT MachineryLtd stock, you should check out this FREE detailed report on its balance sheet.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Guangzhou KDT MachineryLtd the TSR over the last 3 years was -22%, 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 the broader market gained around 6.1% in the last year, Guangzhou KDT MachineryLtd shareholders lost 3.3% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Guangzhou KDT MachineryLtd better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Guangzhou KDT MachineryLtd , and understanding them should be part of your investment process.

We will like Guangzhou KDT MachineryLtd better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.