Despite the downward trend in earnings at Northeast Pharmaceutical Group (SZSE:000597) the stock ascends 7.0%, bringing one-year gains to 21%

We believe investing is smart because history shows that stock markets go higher in the long term. But if you choose that path, you're going to buy some stocks that fall short of the market. Over the last year the Northeast Pharmaceutical Group Co., Ltd. (SZSE:000597) share price is up 19%, but that's less than the broader market return. In contrast, the longer term returns are negative, since the share price is 17% lower than it was three years ago.

Since it's been a strong week for Northeast Pharmaceutical Group shareholders, let's have a look at trend of the longer term fundamentals.

See our latest analysis for Northeast Pharmaceutical 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 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.

Over the last twelve months, Northeast Pharmaceutical Group actually shrank its EPS by 20%.

Given the share price gain, we doubt the market is measuring progress with EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We are skeptical of the suggestion that the 1.9% dividend yield would entice buyers to the stock. Unfortunately Northeast Pharmaceutical Group's fell 7.8% over twelve months. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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. We note that for Northeast Pharmaceutical Group the TSR over the last 1 year was 21%, 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

Northeast Pharmaceutical Group provided a TSR of 21% over the year (including dividends). That's fairly close to the broader market return. The silver lining is that the share price is up in the short term, which flies in the face of the annualised loss of 0.4% over the last five years. While 'turnarounds seldom turn' there are green shoots for Northeast Pharmaceutical Group. It's always interesting to track share price performance over the longer term. But to understand Northeast Pharmaceutical Group better, we need to consider many other factors. For instance, we've identified 1 warning sign for Northeast Pharmaceutical Group that you should be aware of.

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.

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.