In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Asia Allied Infrastructure Holdings Limited (HKG:711) shareholders have had that experience, with the share price dropping 36% in three years, versus a market return of about 18%. The more recent news is of little comfort, with the share price down 30% in a year. 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 12% decline in the broader market, throughout the period.

Check out our latest analysis for Asia Allied Infrastructure Holdings

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 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).

Asia Allied Infrastructure Holdings saw its EPS decline at a compound rate of 30% per year, over the last three years. This fall in the EPS is worse than the 14% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Asia Allied Infrastructure Holdings's key metrics by checking this interactive graph of Asia Allied Infrastructure Holdings's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Asia Allied Infrastructure Holdings the TSR over the last 3 years was -30%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market lost about 7.7% in the twelve months, Asia Allied Infrastructure Holdings shareholders did even worse, losing 27% (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 6.3% 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. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.