The three-year decline in earnings for Zhejiang Yonggui Electric Equipment SZSE:300351) isn't encouraging, but shareholders are still up 123% over that period

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you buy shares in a really great company, you can more than double your money. For example, the Zhejiang Yonggui Electric Equipment Co., Ltd. (SZSE:300351) share price has soared 123% in the last three years. Most would be happy with that. Also pleasing for shareholders was the 15% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 9.6% in 90 days).

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 Zhejiang Yonggui Electric Equipment

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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, Zhejiang Yonggui Electric Equipment actually saw its earnings per share (EPS) drop 0.7% 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.

The modest 0.6% dividend yield is unlikely to be propping up the share price. It could be that the revenue growth of 15% per year is viewed as evidence that Zhejiang Yonggui Electric Equipment 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 company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

This free interactive report on Zhejiang Yonggui Electric Equipment's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

It's nice to see that Zhejiang Yonggui Electric Equipment shareholders have received a total shareholder return of 14% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 13%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Zhejiang Yonggui Electric Equipment better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Zhejiang Yonggui Electric Equipment you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.