Positive earnings growth hasn't been enough to get Espressif Systems (Shanghai) (SHSE:688018) shareholders a favorable return over the last three years

It is a pleasure to report that the Espressif Systems (Shanghai) Co., Ltd. (SHSE:688018) is up 55% in the last quarter. But that doesn't change the fact that the returns over the last three years have been less than pleasing. In fact, the share price is down 45% in the last three years, falling well short of the market return.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

Check out our latest analysis for Espressif Systems (Shanghai)

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).

Although the share price is down over three years, Espressif Systems (Shanghai) actually managed to grow EPS by 8.4% per year in that time. 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 else the company was over-hyped in the past, and so its growth has disappointed.

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.

The modest 0.7% dividend yield is unlikely to be guiding the market view of the stock. We note that, in three years, revenue has actually grown at a 7.3% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Espressif Systems (Shanghai) more closely, as sometimes stocks fall unfairly. This could present an opportunity.

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

We know that Espressif Systems (Shanghai) has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts

A Different Perspective

It's nice to see that Espressif Systems (Shanghai) shareholders have received a total shareholder return of 17% over the last year. That's including the dividend. Notably the five-year annualised TSR loss of 0.6% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. Is Espressif Systems (Shanghai) cheap compared to other companies? These 3 valuation measures might help you decide.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.

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