Investors more bullish on Shanghai Fortune Techgroup (SZSE:300493) this week as stock soars 21%, despite earnings trending downwards over past three years

It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Shanghai Fortune Techgroup Co., Ltd. (SZSE:300493) share price has soared 146% in the last three years. How nice for those who held the stock! Also pleasing for shareholders was the 126% gain in the last three months.

Since it's been a strong week for Shanghai Fortune Techgroup shareholders, let's have a look at trend of the longer term fundamentals.

View our latest analysis for Shanghai Fortune Techgroup

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 three years, Shanghai Fortune Techgroup failed to grow earnings per share, which fell 12% (annualized).

This means it's unlikely the market is judging the company based on earnings growth. 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 0.1% dividend yield is unlikely to be propping up the share price. It could be that the revenue growth of 9.7% per year is viewed as evidence that Shanghai Fortune Techgroup is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.

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

This free interactive report on Shanghai Fortune Techgroup's balance sheet strength is a great place to start, if you want to investigate the stock further.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Shanghai Fortune Techgroup the TSR over the last 3 years was 149%, 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 Shanghai Fortune Techgroup has rewarded shareholders with a total shareholder return of 111% in the last twelve months. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 14% 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. It's always interesting to track share price performance over the longer term. But to understand Shanghai Fortune Techgroup better, we need to consider many other factors. Take risks, for example - Shanghai Fortune Techgroup has 2 warning signs (and 1 which is significant) we think you should know about.

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.