Optimism around Shanghai Huayi Group (SHSE:600623) delivering new earnings growth may be shrinking as stock declines 4.1% this past week

Shanghai Huayi Group Corporation Limited (SHSE:600623) shareholders should be happy to see the share price up 25% in the last quarter. Unfortunately the return over three years isn't so good. To be specific, the share price is a full 15% lower, while the market is down , with a return of (-14%)..

Since Shanghai Huayi Group has shed CN¥661m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for Shanghai Huayi Group

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Shanghai Huayi Group saw its EPS decline at a compound rate of 37% per year, over the last three years. This fall in the EPS is worse than the 9% compound annual share price fall. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Shanghai Huayi Group's key metrics by checking this interactive graph of Shanghai Huayi Group's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of Shanghai Huayi Group, it has a TSR of -15% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Shanghai Huayi Group shareholders have received a total shareholder return of 14% over one year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 4% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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 instance, we've identified 2 warning signs for Shanghai Huayi Group that you should be aware of.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.