Generally speaking long term investing is the way to go. But unfortunately, some companies simply don't succeed. For example the Guangdong Investment Limited (HKG:270) share price dropped 75% over five years. That's an unpleasant experience for long term holders. And we doubt long term believers are the only worried holders, since the stock price has declined 40% over the last twelve months. Even worse, it's down 11% in about a month, which isn't fun at all. We do note, however, that the broader market is down 6.0% in that period, and this may have weighed on the share price.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Guangdong Investment the TSR over the last 5 years was -66%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We regret to report that Guangdong Investment shareholders are down 36% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 2.5%. 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. 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 Guangdong Investment better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Guangdong Investment , and understanding them should be part of your investment process.

We will like Guangdong Investment better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) 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 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