China Shanshui Cement Group (HKG:691) sheds CN¥566m, company earnings and investor returns have been trending downwards for past three years

For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that’s been the case for longer term China Shanshui Cement Group Limited (HKG:691) shareholders, since the share price is down 27% in the last three years, falling well short of the market decline of around 2.4%. Furthermore, it’s down 12% in about a quarter. That’s not much fun for holders. Of course, this share price action may well have been influenced by the 11% decline in the broader market, throughout the period.

If the past week is anything to go by, investor sentiment for China Shanshui Cement Group isn’t positive, so let’s see if there’s a mismatch between fundamentals and the share price.

However if you’d rather see where the opportunities and risks are within 691’s industry, you can check out our analysis on the HK Basic Materials industry.

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

China Shanshui Cement Group saw its EPS decline at a compound rate of 10% per year, over the last three years. This change in EPS is reasonably close to the 10% average annual decrease in the share price. So it seems that investor expectations of the company are staying pretty steady, despite the disappointment. It seems like the share price is reflecting the declining earnings per share.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Different Perspective

While it’s never nice to take a loss, China Shanshui Cement Group shareholders can take comfort that , including dividends, their trailing twelve month loss of 11% wasn’t as bad as the market loss of around -19%. Unfortunately, last year’s performance may indicate unresolved challenges, given that it’s even worse than the annualised loss of 8% over the last three years. Whilst Baron Rothschild does say to “buy when there’s blood in the streets, even if the blood is your own”, buyers would need to examine the data carefully to be comfortable that the business itself is sound. It’s always interesting to track share price performance over the longer term. But to understand China Shanshui Cement Group better, we need to consider many other factors. Even so, be aware that China Shanshui Cement Group is showing 2 warning signs in our investment analysis , you should know about…

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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK 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.