We think intelligent long term investing is the way to go. But unfortunately, some companies simply don't succeed. For example the China Vanke Co., Ltd. (SZSE:000002) share price dropped 74% over five years. We certainly feel for shareholders who bought near the top. And some of the more recent buyers are probably worried, too, with the stock falling 48% in the last year. Even worse, it's down 25% in about a month, which isn't fun at all.

With the stock having lost 9.4% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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

During the five years over which the share price declined, China Vanke's earnings per share (EPS) dropped by 22% each year. This change in EPS is reasonably close to the 24% average annual decrease in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Rather, the share price change has reflected changes in earnings per share.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on China Vanke's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between China Vanke's total shareholder return (TSR) and its 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. Its history of dividend payouts mean that China Vanke's TSR, which was a 67% drop over the last 5 years, was not as bad as the share price return.

A Different Perspective

While the broader market lost about 14% in the twelve months, China Vanke shareholders did even worse, losing 46%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. 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. 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 China Vanke is showing 2 warning signs in our investment analysis , and 1 of those is significant...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com