Chongqing Department StoreLtd's (SHSE:600729) earnings growth rate lags the 2.0% CAGR delivered to shareholders

While it may not be enough for some shareholders, we think it is good to see the Chongqing Department Store Co.,Ltd. (SHSE:600729) share price up 15% in a single quarter. But if you look at the last five years the returns have not been good. After all, the share price is down 23% in that time, significantly under-performing the market.

If the past week is anything to go by, investor sentiment for Chongqing Department StoreLtd isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

Check out our latest analysis for Chongqing Department StoreLtd

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

While the share price declined over five years, Chongqing Department StoreLtd actually managed to increase EPS by an average of 5.1% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.

Due to the lack of correlation between the EPS growth and the falling share price, it's worth taking a look at other metrics to try to understand the share price movement.

The steady dividend doesn't really explain why the share price is down. It could be that the revenue decline of 14% per year is viewed as evidence that Chongqing Department StoreLtd is shrinking. With dividends up, but revenue down, some investors might be concluding that the company is no longer growing.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

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?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Chongqing Department StoreLtd the TSR over the last 5 years was 11%, 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

While the broader market gained around 7.5% in the last year, Chongqing Department StoreLtd shareholders lost 13% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 2% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 - Chongqing Department StoreLtd has 2 warning signs we think you should be aware of.

But note: Chongqing Department StoreLtd may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.