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If you love investing in stocks you're bound to buy some losers. But long term South China Holdings Company Limited (HKG:413) shareholders have had a particularly rough ride in the last three year. Regrettably, they have had to cope with a 60% 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 27% lower in that time. Shareholders have had an even rougher run lately, with the share price down 18% in the last 90 days. But this could be related to the weak market, which is down 9.7% in the same period.
View our latest analysis for South China Holdings
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the three years that the share price fell, South China Holdings's earnings per share (EPS) dropped by 19% each year. The share price decline of 27% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy.
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
We regret to report that South China Holdings shareholders are down 27% for the year. Unfortunately, that's worse than the broader market decline of 15%. 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 7.5% 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 businesses. Before spending more time on South China Holdings it might be wise to click here to see if insiders have been buying or selling shares.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).