For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term Chongqing Three Gorges Water Conservancy and Electric Power Co., Ltd. (SHSE:600116) shareholders, since the share price is down 44% in the last three years, falling well short of the market decline of around 17%. Shareholders have had an even rougher run lately, with the share price down 10% in the last 90 days.

With the stock having lost 3.3% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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 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).

During the three years that the share price fell, Chongqing Three Gorges Water Conservancy and Electric Power's earnings per share (EPS) dropped by 18% each year. So do you think it's a coincidence that the share price has dropped 17% per year, a very similar rate to the EPS? We don't. So it seems like sentiment towards the stock hasn't changed all that much over time. In this case, it seems that the EPS is guiding the share price.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Chongqing Three Gorges Water Conservancy and Electric Power has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst 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. As it happens, Chongqing Three Gorges Water Conservancy and Electric Power's TSR for the last 3 years was -41%, 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

Chongqing Three Gorges Water Conservancy and Electric Power shareholders are down 8.2% for the year (even including dividends), but the market itself is up 7.2%. 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 1.2% 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. It's always interesting to track share price performance over the longer term. But to understand Chongqing Three Gorges Water Conservancy and Electric Power better, we need to consider many other factors. Even so, be aware that Chongqing Three Gorges Water Conservancy and Electric Power is showing 3 warning signs in our investment analysis , and 1 of those can't be ignored...

Of course Chongqing Three Gorges Water Conservancy and Electric Power 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 Chinese 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.