Huabao Flavours & Fragrances (SZSE:300741) earnings and shareholder returns have been trending downwards for the last three years, but the stock advances 4.6% this past week

While it may not be enough for some shareholders, we think it is good to see the Huabao Flavours & Fragrances Co., Ltd. (SZSE:300741) share price up 21% in a single quarter. Meanwhile over the last three years the stock has dropped hard. Regrettably, the share price slid 67% in that period. Some might say the recent bounce is to be expected after such a bad drop. After all, could be that the fall was overdone.

On a more encouraging note the company has added CN¥505m 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.

See our latest analysis for Huabao Flavours & Fragrances

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Huabao Flavours & Fragrances saw its EPS decline at a compound rate of 40% per year, over the last three years. In comparison the 31% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines. With a P/E ratio of 48.09, it's fair to say the market sees a brighter future for the business.

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

This free interactive report on Huabao Flavours & Fragrances' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Huabao Flavours & Fragrances' TSR for the last 3 years was -62%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Huabao Flavours & Fragrances had a tough year, with a total loss of 16% (including dividends), against a market gain of about 10%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Huabao Flavours & Fragrances better, we need to consider many other factors. Even so, be aware that Huabao Flavours & Fragrances is showing 4 warning signs in our investment analysis , and 1 of those is a bit concerning...

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.

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.