HUAYU Automotive Systems (SHSE:600741) shareholders have endured a 22% loss from investing in the stock three years ago

As an investor its worth striving to ensure your overall portfolio beats the market average. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term HUAYU Automotive Systems Company Limited (SHSE:600741) shareholders, since the share price is down 32% in the last three years, falling well short of the market decline of around 16%. More recently, the share price has dropped a further 9.0% in a month. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

View our latest analysis for HUAYU Automotive Systems

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 unfortunate three years of share price decline, HUAYU Automotive Systems actually saw its earnings per share (EPS) improve by 2.4% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

After considering the numbers, we'd posit that the the market had higher expectations of EPS growth, three years back. However, taking a look at other business metrics might shed a bit more light on the share price action.

We note that the dividend has declined - a likely contributor to the share price drop. In contrast it does not seem particularly likely that the revenue levels are a concern for investors.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

HUAYU Automotive Systems is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of HUAYU Automotive Systems, it has a TSR of -22% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While it's certainly disappointing to see that HUAYU Automotive Systems shares lost 2.7% throughout the year, that wasn't as bad as the market loss of 8.7%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 0.6% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand HUAYU Automotive Systems better, we need to consider many other factors. To that end, you should learn about the 2 warning signs we've spotted with HUAYU Automotive Systems (including 1 which is potentially serious) .

Of course HUAYU Automotive Systems may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.