Long term investing works well, but it doesn't always work for each individual stock. We really hate to see fellow investors lose their hard-earned money. Spare a thought for those who held Poly Culture Group Corporation Limited (HKG:3636) for five whole years - as the share price tanked 78%. And we doubt long term believers are the only worried holders, since the stock price has declined 32% over the last twelve months. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days. But this could be related to the weak market, which is down 5.8% in the same period.
View our latest analysis for Poly Culture Group
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
During the five years over which the share price declined, Poly Culture Group's earnings per share (EPS) dropped by 10% each year. This reduction in EPS is less than the 26% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 6.83.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into Poly Culture Group's key metrics by checking this interactive graph of Poly Culture Group's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Poly Culture Group, it has a TSR of -75% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market lost about 6.1% in the twelve months, Poly Culture Group shareholders did even worse, losing 31% (even including dividends) . 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 24% per year over five years. 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. Before deciding if you like the current share price, check how Poly Culture Group scores on these 3 valuation metrics.