Optimism for Hubei W-olf Photoelectric Technology (SZSE:002962) has grown this past week, despite three-year decline in earnings

By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. Just take a look at Hubei W-olf Photoelectric Technology Co., Ltd. (SZSE:002962), which is up 44%, over three years, soundly beating the market decline of 19% (not including dividends).

The past week has proven to be lucrative for Hubei W-olf Photoelectric Technology investors, so let's see if fundamentals drove the company's three-year performance.

View our latest analysis for Hubei W-olf Photoelectric Technology

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 three years of share price growth, Hubei W-olf Photoelectric Technology actually saw its earnings per share (EPS) drop 5.1% per year.

Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Therefore, we think it's worth considering other metrics as well.

Languishing at just 1.1%, we doubt the dividend is doing much to prop up the share price. It could be that the revenue growth of 6.1% per year is viewed as evidence that Hubei W-olf Photoelectric Technology is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

Take a more thorough look at Hubei W-olf Photoelectric Technology's financial health with this free report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Hubei W-olf Photoelectric Technology the TSR over the last 3 years was 51%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Hubei W-olf Photoelectric Technology had a tough year, with a total loss of 21% (including dividends), against a market gain of about 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4% 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. It's always interesting to track share price performance over the longer term. But to understand Hubei W-olf Photoelectric Technology better, we need to consider many other factors. Take risks, for example - Hubei W-olf Photoelectric Technology has 2 warning signs (and 1 which can't be ignored) we think you should know about.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.