The three-year decline in earnings might be taking its toll on Guangdong Provincial Expressway Development (SZSE:000429) shareholders as stock falls 3.3% over the past week

By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Guangdong Provincial Expressway Development Co., Ltd. (SZSE:000429) shareholders have seen the share price rise 76% over three years, well in excess of the market decline (19%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 55%, including dividends.

In light of the stock dropping 3.3% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.

View our latest analysis for Guangdong Provincial Expressway Development

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 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.

Over the last three years, Guangdong Provincial Expressway Development failed to grow earnings per share, which fell 4.2% (annualized).

Companies are not always focussed on EPS growth in the short term, and looking at how the share price has reacted, we don't think EPS is the most important metric for Guangdong Provincial Expressway Development at the moment. Therefore, it makes sense to look into other metrics.

We doubt the dividend payments explain the share price rise, since we don't see any improvement in that regard. Many investors probably think the fact that Guangdong Provincial Expressway Development's revenue has been declining at a rate of 3.2% per year is a real negative. And to be fair, we don't see how EPS can grow sustainably without a boost to revenue.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. If you are thinking of buying or selling Guangdong Provincial Expressway Development stock, you should check out this free report showing analyst profit forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Guangdong Provincial Expressway Development the TSR over the last 3 years was 110%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Guangdong Provincial Expressway Development shareholders have received a total shareholder return of 55% over one year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 17% 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. 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. For instance, we've identified 1 warning sign for Guangdong Provincial Expressway Development that you should be aware of.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.