While not a mind-blowing move, it is good to see that the Shenzhen Zhilai Sci and Tech Co., Ltd. (SZSE:300771) share price has gained 27% in the last three months. But that doesn't change the fact that the returns over the last half decade have been disappointing. In that time the share price has delivered a rude shock to holders, who find themselves down 56% after a long stretch. So we're hesitant to put much weight behind the short term increase. We'd err towards caution given the long term under-performance.

On a more encouraging note the company has added CN¥395m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

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, Shenzhen Zhilai Sci and Tech's earnings per share (EPS) dropped by 32% each year. This fall in the EPS is worse than the 15% compound annual share price fall. So investors might expect EPS to bounce back -- or they may have previously foreseen the EPS decline. With a P/E ratio of 55.08, it's fair to say the market sees a brighter future for the business.

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

It's probably worth noting that the CEO is paid less than the median at similar sized 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 Shenzhen Zhilai Sci and Tech's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Shenzhen Zhilai Sci and Tech's TSR for the last 5 years was -53%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Shenzhen Zhilai Sci and Tech shareholders are down 2.0% for the year (even including dividends), but the market itself is up 3.3%. 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. However, the loss over the last year isn't as bad as the 9% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It's always interesting to track share price performance over the longer term. But to understand Shenzhen Zhilai Sci and Tech better, we need to consider many other factors. Even so, be aware that Shenzhen Zhilai Sci and Tech is showing 4 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.