The main aim of stock picking is to find the market-beating stocks. But in any portfolio, there will be mixed results between individual stocks. So we wouldn't blame long term China Everbright Environment Group Limited (HKG:257) shareholders for doubting their decision to hold, with the stock down 64% over a half decade. And we doubt long term believers are the only worried holders, since the stock price has declined 29% over the last twelve months. Shareholders have had an even rougher run lately, with the share price down 11% in the last 90 days.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

View our latest analysis for China Everbright Environment Group

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 five years over which the share price declined, China Everbright Environment Group's earnings per share (EPS) dropped by 3.1% each year. This reduction in EPS is less than the 18% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 3.41.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

Dive deeper into China Everbright Environment Group's key metrics by checking this interactive graph of China Everbright Environment Group's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. We note that for China Everbright Environment Group the TSR over the last 5 years was -50%, 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 Everbright Environment Group had a tough year, with a total loss of 23% (including dividends), against a market gain of about 0.06%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 8% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. For instance, we've identified 2 warning signs for China Everbright Environment Group (1 doesn't sit too well with us) that you should be aware of.

Of course China Everbright Environment Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.