Despite delivering investors losses of 42% over the past 3 years, Qinghai Huzhu TianYouDe Highland Barley Spirit (SZSE:002646) has been growing its earnings

It is doubtless a positive to see that the Qinghai Huzhu TianYouDe Highland Barley Spirit Co., Ltd. (SZSE:002646) share price has gained some 49% in the last three months. But that doesn't change the fact that the returns over the last three years have been less than pleasing. After all, the share price is down 43% in the last three years, significantly under-performing the market.

On a more encouraging note the company has added CN¥699m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

View our latest analysis for Qinghai Huzhu TianYouDe Highland Barley Spirit

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, Qinghai Huzhu TianYouDe Highland Barley Spirit actually saw its earnings per share (EPS) improve by 4.7% 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.

After considering the numbers, we'd posit that the the market had higher expectations of EPS growth, three years back. Looking to other metrics might better explain the share price change.

With a rather small yield of just 0.5% we doubt that the stock's share price is based on its dividend. We note that, in three years, revenue has actually grown at a 8.3% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Qinghai Huzhu TianYouDe Highland Barley Spirit further; while we may be missing something on this analysis, there might also be an opportunity.

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 Qinghai Huzhu TianYouDe Highland Barley Spirit's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Qinghai Huzhu TianYouDe Highland Barley Spirit shareholders are down 9.9% for the year (even including dividends), but the market itself is up 14%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for Qinghai Huzhu TianYouDe Highland Barley Spirit (1 can't be ignored!) that you should be aware of before investing here.

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.