Tong Ren Tang Technologies Co. Ltd. (HKG:1666) shareholders should be happy to see the share price up 14% in the last month. But if you look at the last five years the returns have not been good. In fact, the share price is down 45%, which falls well short of the return you could get by buying an index fund.

Since Tong Ren Tang Technologies has shed HK$410m 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).

During the five years over which the share price declined, Tong Ren Tang Technologies' earnings per share (EPS) dropped by 2.7% each year. This reduction in EPS is less than the 11% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The low P/E ratio of 11.07 further reflects this reticence.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on Tong Ren Tang Technologies' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Tong Ren Tang Technologies the TSR over the last 5 years was -38%, 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 8.8% in the last year, Tong Ren Tang Technologies shareholders lost 20% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. Importantly, we haven't analysed Tong Ren Tang Technologies' dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.

Of course Tong Ren Tang Technologies may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.