The truth is that if you invest for long enough, you're going to end up with some losing stocks. But the long term shareholders of Huabao Flavours & Fragrances Co., Ltd. (SZSE:300741) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 60% drop in the share price over that period.

Since Huabao Flavours & Fragrances has shed CN¥413m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for Huabao Flavours & Fragrances

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 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 three years that the share price fell, Huabao Flavours & Fragrances' earnings per share (EPS) dropped by 25% each year. So do you think it's a coincidence that the share price has dropped 26% per year, a very similar rate to the EPS? We don't. So it seems that investor expectations of the company are staying pretty steady, despite the disappointment. In this case, it seems that the EPS is guiding the share price.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Huabao Flavours & Fragrances' key metrics by checking this interactive graph of Huabao Flavours & Fragrances's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Huabao Flavours & Fragrances, it has a TSR of -53% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

The total return of 8.8% received by Huabao Flavours & Fragrances shareholders over the last year isn't far from the market return of -8.1%. Unfortunately, last year's performance is a deterioration of an already poor long term track record, given the loss of 1.7% per year over the last five years. Weak performance over the long term usually destroys market confidence in a stock, but bargain hunters may want to take a closer look for signs of a turnaround. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 3 warning signs for Huabao Flavours & Fragrances (1 can't be ignored) that you should be aware of.

We will like Huabao Flavours & Fragrances better if we see some big insider buys. While we wait, check out this free list of growing companies 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.

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