Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Luzhou Bank Co., Ltd. (HKG:1983) shareholders over the last year, as the share price declined 25%. That falls noticeably short of the market return of around 25%. At least the damage isn't so bad if you look at the last three years, since the stock is down 17% in that time.

On a more encouraging note the company has added HK$462m to its market cap in just the last 7 days, so let's see if we can determine what's driven the one-year loss for shareholders.

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...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the unfortunate twelve months during which the Luzhou Bank share price fell, it actually saw its earnings per share (EPS) improve by 39%. It could be that the share price was previously over-hyped.

The divergence between the EPS and the share price is quite notable, during the year. So it's well worth checking out some other metrics, too.

We don't see any weakness in the Luzhou Bank's dividend so the steady payout can't really explain the share price drop. From what we can see, revenue is pretty flat, so that doesn't really explain the share price drop. Of course, it could simply be that it simply fell short of the market consensus expectations.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Luzhou Bank'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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Luzhou Bank's TSR for the last 1 year was -19%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market gained around 25% in the last year, Luzhou Bank shareholders lost 19% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.4% 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. 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 example, we've discovered 1 warning sign for Luzhou Bank that you should be aware of before investing here.

Luzhou Bank is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been 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.