The three-year loss for Glodon (SZSE:002410) shareholders likely driven by its shrinking earnings

Simply Wall St · 10/18 23:40

Over the last month the Glodon Company Limited (SZSE:002410) has been much stronger than before, rebounding by 61%. Meanwhile over the last three years the stock has dropped hard. In that time, the share price dropped 70%. So the improvement may be a real relief to some. Perhaps the company has turned over a new leaf.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

View our latest analysis for Glodon

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Glodon saw its EPS decline at a compound rate of 50% per year, over the last three years. This fall in the EPS is worse than the 33% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines. With a P/E ratio of 401.39, it's fair to say the market sees a brighter future for the business.

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

earnings-per-share-growth
SZSE:002410 Earnings Per Share Growth October 18th 2024

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

A Different Perspective

While the broader market gained around 2.2% in the last year, Glodon shareholders lost 26% (even including dividends). 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 7% 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Glodon , and understanding them should be part of your investment process.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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