Guangdong Hongda Holdings Group's (SZSE:002683) earnings growth rate lags the 37% return delivered to shareholders

Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Guangdong Hongda Holdings Group Co., Ltd. (SZSE:002683) share price is up 33% in the last 1 year, clearly besting the market return of around 8.2% (not including dividends). That's a solid performance by our standards! On the other hand, longer term shareholders have had a tougher run, with the stock falling 11% in three years.

Although Guangdong Hongda Holdings Group has shed CN¥867m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

View our latest analysis for Guangdong Hongda Holdings Group

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 last year Guangdong Hongda Holdings Group grew its earnings per share (EPS) by 29%. We note that the earnings per share growth isn't far from the share price growth (of 33%). That suggests that the market sentiment around the company hasn't changed much over that time. We don't think its coincidental that the share price is growing at a similar rate to the earnings per share.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Guangdong Hongda Holdings Group has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Guangdong Hongda Holdings Group will grow revenue in the future.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Guangdong Hongda Holdings Group the TSR over the last 1 year was 37%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Guangdong Hongda Holdings Group has rewarded shareholders with a total shareholder return of 37% in the last twelve months. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 7% 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Guangdong Hongda Holdings Group , and understanding them should be part of your investment process.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.