The three-year shareholder returns and company earnings persist lower as Lier ChemicalLTD (SZSE:002258) stock falls a further 8.0% in past week

Simply Wall St · 10/14 22:56

Lier Chemical Co.,LTD. (SZSE:002258) shareholders should be happy to see the share price up 18% in the last month. But over the last three years we've seen a quite serious decline. In that time, the share price dropped 57%. So it's good to see it climbing back up. While many would remain nervous, there could be further gains if the business can put its best foot forward.

Since Lier ChemicalLTD has shed CN¥560m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Lier ChemicalLTD

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. 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.

Lier ChemicalLTD saw its EPS decline at a compound rate of 39% per year, over the last three years. This fall in the EPS is worse than the 25% compound annual share price fall. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term.

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

earnings-per-share-growth
SZSE:002258 Earnings Per Share Growth October 14th 2024

This free interactive report on Lier ChemicalLTD's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Lier ChemicalLTD's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Lier ChemicalLTD's TSR of was a loss of 55% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

While the broader market lost about 0.6% in the twelve months, Lier ChemicalLTD shareholders did even worse, losing 35%. 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. On the bright side, long term shareholders have made money, with a gain of 1.1% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 1 warning sign for Lier ChemicalLTD that you should be aware of.

But note: Lier ChemicalLTD may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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