Positive earnings growth hasn't been enough to get New Hope Dairy (SZSE:002946) shareholders a favorable return over the last three years

It is a pleasure to report that the New Hope Dairy Co., Ltd. (SZSE:002946) is up 60% in the last quarter. It's not great that the stock is down over the last three years. But that's not so bad when you consider its market is down 17%.

While the last three years has been tough for New Hope Dairy shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

Check out our latest analysis for New Hope Dairy

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the unfortunate three years of share price decline, New Hope Dairy actually saw its earnings per share (EPS) improve by 15% 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 is a little bizarre to see the share price down, despite a strong improvement to earnings per share. Therefore, we should look at some other metrics to try to understand why the market is disappointed.

With a rather small yield of just 1.1% we doubt that the stock's share price is based on its dividend. Revenue is actually up 8.2% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating New Hope Dairy further; while we may be missing something on this analysis, there might also be 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).

We know that New Hope Dairy 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 New Hope Dairy will earn in the future (free profit forecasts).

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, New Hope Dairy's TSR for the last 3 years was -8.7%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that New Hope Dairy shareholders have received a total shareholder return of 5.0% over one year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 1.5% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Take risks, for example - New Hope Dairy has 1 warning sign we think you should be aware of.

Of course New Hope Dairy 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.