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If You Had Bought China Tonghai International Financial (HKG:952) Stock Three Years Ago, You'd Be Sitting On A 71% Loss, Today

Every investor on earth makes bad calls sometimes. But you want to avoid the really big losses like the plague. So consider, for a moment, the misfortune of China Tonghai International Financial Limited (HKG:952) investors who have held the stock for three years as it declined a whopping 71%. That would certainly shake our confidence in the decision to own the stock. The more recent news is of little comfort, with the share price down 29% in a year.

See our latest analysis for China Tonghai International Financial

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...' 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).

Although the share price is down over three years, China Tonghai International Financial actually managed to grow EPS by 97% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

Revenue is actually up 23% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching China Tonghai International Financial more closely, as sometimes stocks fall unfairly. This could present an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

SEHK:952 Income Statement, February 20th 2020
SEHK:952 Income Statement, February 20th 2020

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

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between China Tonghai International Financial's total shareholder return (TSR) and its share price return. 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. Dividends have been really beneficial for China Tonghai International Financial shareholders, and that cash payout explains why its total shareholder loss of 70%, over the last 3 years, isn't as bad as the share price return.

A Different Perspective

While the broader market lost about 1.6% in the twelve months, China Tonghai International Financial shareholders did even worse, losing 29%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 8.0% per year over five years. We realise that Buffett 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. Be aware that China Tonghai International Financial is showing 1 warning sign in our investment analysis , you should know about...

Of course China Tonghai International Financial 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 HK exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.