China Overseas Land & Investment Limited (HKG:688) shareholders should be happy to see the share price up 13% in the last quarter. But if you look at the last five years the returns have not been good. After all, the share price is down 53% in that time, significantly under-performing the market.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the five years over which the share price declined, China Overseas Land & Investment's earnings per share (EPS) dropped by 7.4% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 14% per year, over the period. This implies that the market was previously too optimistic about the stock. The low P/E ratio of 5.18 further reflects this reticence.

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

We know that China Overseas Land & Investment has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for China Overseas Land & Investment the TSR over the last 5 years was -40%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in China Overseas Land & Investment had a tough year, with a total loss of 17% (including dividends), against a market gain of about 5.8%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 7% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand China Overseas Land & Investment better, we need to consider many other factors. For instance, we've identified 1 warning sign for China Overseas Land & Investment that you should be aware of.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.

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