Many investors define successful investing as beating the market average over the long term. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Datang International Power Generation Co., Ltd. (HKG:991) shareholders have had that experience, with the share price dropping 14% in three years, versus a market decline of about 5.5%. In the last ninety days we've seen the share price slide 16%.

Since Datang International Power Generation has shed HK$1.1b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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. 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 three years of share price decline, Datang International Power Generation actually saw its earnings per share (EPS) improve by 79% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

It's strange to see such muted share price performance despite sustained growth. Perhaps a clue lies in other metrics. So we'll have to take a look at other metrics to try to understand the price action.

The modest 0.6% dividend yield is unlikely to be guiding the market view of the stock. We note that, in three years, revenue has actually grown at a 6.5% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Datang International Power Generation more closely, as sometimes stocks fall unfairly. This could present an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

This free interactive report on Datang International Power Generation's balance sheet strength is a great place to start, if you want to investigate the stock further.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Datang International Power Generation's TSR for the last 3 years was -12%, 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

Datang International Power Generation shareholders are up 9.1% for the year (even including dividends). But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 3% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. 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 2 warning signs for Datang International Power Generation that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.