Earnings growth of 0.6% over 3 years hasn't been enough to translate into positive returns for Bear Electric ApplianceLtd (SZSE:002959) shareholders

For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Bear Electric Appliance Co.,Ltd. (SZSE:002959) shareholders have had that experience, with the share price dropping 32% in three years, versus a market decline of about 14%. And more recent buyers are having a tough time too, with a drop of 24% in the last year. On top of that, the share price is down 8.2% in the last week. However, this move may have been influenced by the broader market, which fell 3.9% in that time.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

View our latest analysis for Bear Electric ApplianceLtd

There is no denying that markets are sometimes efficient, but prices do not always reflect 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, Bear Electric ApplianceLtd actually saw its earnings per share (EPS) improve by 2.0% 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 pretty reasonable to suspect the market was previously to bullish on the stock, and has since moderated expectations. However, taking a look at other business metrics might shed a bit more light on the share price action.

We note that, in three years, revenue has actually grown at a 10.0% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Bear Electric ApplianceLtd more closely, as sometimes stocks fall unfairly. This could present an opportunity.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

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

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 Bear Electric ApplianceLtd the TSR over the last 3 years was -29%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in Bear Electric ApplianceLtd had a tough year, with a total loss of 22% (including dividends), against a market gain of about 6.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 0.3% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should learn about the 2 warning signs we've spotted with Bear Electric ApplianceLtd (including 1 which makes us a bit uncomfortable) .

Of course Bear Electric ApplianceLtd 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.