For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Shenzhen Sunlord Electronics Co.,Ltd. (SZSE:002138) shareholders, since the share price is down 36% in the last three years, falling well short of the market decline of around 27%. On top of that, the share price is down 9.7% in the last week.

Since Shenzhen Sunlord ElectronicsLtd has shed CN¥2.1b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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, Shenzhen Sunlord ElectronicsLtd actually managed to grow EPS by 2.4% 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's pretty reasonable to suspect the market was previously to bullish on the stock, and has since moderated expectations. Looking to other metrics might better explain the share price change.

The modest 1.2% dividend yield is unlikely to be guiding the market view of the stock. Revenue is actually up 5.5% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Shenzhen Sunlord ElectronicsLtd further; while we may be missing something on this analysis, there might also be an opportunity.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Shenzhen Sunlord ElectronicsLtd is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Shenzhen Sunlord ElectronicsLtd will earn in the future (free analyst consensus estimates)

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Shenzhen Sunlord ElectronicsLtd's TSR for the last 3 years was -34%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While it's certainly disappointing to see that Shenzhen Sunlord ElectronicsLtd shares lost 0.7% throughout the year, that wasn't as bad as the market loss of 17%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 7% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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 Shenzhen Sunlord ElectronicsLtd is showing 2 warning signs in our investment analysis , you should know about...

But note: Shenzhen Sunlord ElectronicsLtd may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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