Despite delivering investors losses of 39% over the past 3 years, Guangdong Xinbao Electrical Appliances Holdings (SZSE:002705) has been growing its earnings

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term Guangdong Xinbao Electrical Appliances Holdings Co., Ltd (SZSE:002705) shareholders have had that experience, with the share price dropping 43% in three years, versus a market decline of about 19%.

The recent uptick of 3.5% could be a positive sign of things to come, so let's take a look at historical fundamentals.

Check out our latest analysis for Guangdong Xinbao Electrical Appliances Holdings

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the unfortunate three years of share price decline, Guangdong Xinbao Electrical Appliances Holdings actually saw its earnings per share (EPS) improve by 8.9% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

With revenue flat over three years, it seems unlikely that the share price is reflecting the top line. There doesn't seem to be any clear correlation between the fundamental business metrics and the share price. That could mean that the stock was previously overrated, or it could spell opportunity now.

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

We know that Guangdong Xinbao Electrical Appliances Holdings has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Guangdong Xinbao Electrical Appliances Holdings will earn in the future (free profit forecasts).

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Guangdong Xinbao Electrical Appliances Holdings' TSR for the last 3 years was -39%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Guangdong Xinbao Electrical Appliances Holdings shareholders have received a total shareholder return of 15% over the last year. Of course, that includes the dividend. That certainly beats the loss of about 2% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It's always interesting to track share price performance over the longer term. But to understand Guangdong Xinbao Electrical Appliances Holdings better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Guangdong Xinbao Electrical Appliances Holdings you should be aware of.

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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.