Earnings are growing at Shenzhen Microgate Technology (SZSE:300319) but shareholders still don't like its prospects

One simple way to benefit from a rising market is to buy an index fund. By comparison, an individual stock is unlikely to match market returns - and could well fall short. The Shenzhen Microgate Technology Co., Ltd. (SZSE:300319) is such an example; over three years its share price is down 37% versus a marketdecline of 33%.

With the stock having lost 5.1% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

See our latest analysis for Shenzhen Microgate Technology

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 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, Shenzhen Microgate Technology actually managed to grow EPS by 23% 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 1.1% dividend yield is unlikely to be guiding the market view of the stock. Arguably the revenue decline of 3.2% per year has people thinking Shenzhen Microgate Technology is shrinking. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We know that Shenzhen Microgate Technology has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Shenzhen Microgate Technology in this interactive graph of future profit estimates.

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. In the case of Shenzhen Microgate Technology, it has a TSR of -35% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While it's never nice to take a loss, Shenzhen Microgate Technology shareholders can take comfort that , including dividends,their trailing twelve month loss of 5.5% wasn't as bad as the market loss of around 19%. Longer term investors wouldn't be so upset, since they would have made 2%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Shenzhen Microgate Technology is showing 2 warning signs in our investment analysis , you should know about...

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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.