The three-year decline in earnings might be taking its toll on Ningbo ZhongDa Leader Intelligent Transmission (SZSE:002896) shareholders as stock falls 7.7% over the past week

While Ningbo ZhongDa Leader Intelligent Transmission Co., Ltd. (SZSE:002896) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 17% in the last quarter. But that doesn't undermine the rather lovely longer-term return, if you measure over the last three years. The share price marched upwards over that time, and is now 104% higher than it was. After a run like that some may not be surprised to see prices moderate. If the business can perform well for years to come, then the recent drop could be an opportunity.

While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

Check out our latest analysis for Ningbo ZhongDa Leader Intelligent Transmission

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 three years of share price growth, Ningbo ZhongDa Leader Intelligent Transmission actually saw its earnings per share (EPS) drop 2.7% per year.

Based on these numbers, we think that the decline in earnings per share may not be a good representation of how the business has changed over the years. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

Languishing at just 0.2%, we doubt the dividend is doing much to prop up the share price. It could be that the revenue growth of 7.4% per year is viewed as evidence that Ningbo ZhongDa Leader Intelligent Transmission is growing. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We know that Ningbo ZhongDa Leader Intelligent Transmission has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Ningbo ZhongDa Leader Intelligent Transmission stock, you should check out this free report showing analyst profit forecasts.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Ningbo ZhongDa Leader Intelligent Transmission the TSR over the last 3 years was 108%, 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

It's nice to see that Ningbo ZhongDa Leader Intelligent Transmission shareholders have received a total shareholder return of 10% over the last year. That's including the dividend. Having said that, the five-year TSR of 14% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand Ningbo ZhongDa Leader Intelligent Transmission better, we need to consider many other factors. For example, we've discovered 1 warning sign for Ningbo ZhongDa Leader Intelligent Transmission that you should be aware of before investing here.

We will like Ningbo ZhongDa Leader Intelligent Transmission better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.