Investing in stocks inevitably means buying into some companies that perform poorly. But the long term shareholders of China Education Group Holdings Limited (HKG:839) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 73% drop in the share price over that period. And the ride hasn't got any smoother in recent times over the last year, with the price 31% lower in that time. The falls have accelerated recently, with the share price down 40% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

China Education Group Holdings saw its EPS decline at a compound rate of 38% per year, over the last three years. This change in EPS is reasonably close to the 35% average annual decrease in the share price. So it seems that investor expectations of the company are staying pretty steady, despite the disappointment. Rather, the share price has approximately tracked EPS growth.

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

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on China Education Group Holdings' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, China Education Group Holdings' TSR for the last 3 years was -68%, 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 22% in the last year, China Education Group Holdings shareholders lost 25% (even including dividends). 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 10% 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. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for China Education Group Holdings (of which 1 can't be ignored!) you should know about.

China Education Group Holdings 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.