We think intelligent long term investing is the way to go. But no-one is immune from buying too high. For example, after five long years the Hanhua Financial Holding Co., Ltd. (HKG:3903) share price is a whole 70% lower. That is extremely sub-optimal, to say the least. And some of the more recent buyers are probably worried, too, with the stock falling 20% in the last year. The good news is that the stock is up 2.6% in the last week.

Check out our latest analysis for Hanhua Financial Holding

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).

During the five years over which the share price declined, Hanhua Financial Holding's earnings per share (EPS) dropped by 14% each year. This reduction in EPS is less than the 22% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The low P/E ratio of 6.22 further reflects this reticence.

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

Dive deeper into Hanhua Financial Holding's key metrics by checking this interactive graph of Hanhua Financial Holding's earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Hanhua Financial Holding's total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Hanhua Financial Holding's TSR of was a loss of 61% for the 5 years. That wasn't as bad as its share price return, because it has paid dividends.

A Different Perspective

While the broader market gained around 10.0% in the last year, Hanhua Financial Holding shareholders lost 20%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 17% 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. 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. Take risks, for example - Hanhua Financial Holding has 1 warning sign we think you should be aware of.

But note: Hanhua Financial Holding 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 HK exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.