Guangzhou Hengyun Enterprises Holding (SZSE:000531) earnings and shareholder returns have been trending downwards for the last three years, but the stock hikes 12% this past week

Guangzhou Hengyun Enterprises Holding Ltd (SZSE:000531) shareholders should be happy to see the share price up 12% in the last month. Unfortunately the return over three years isn't so good. To be specific, the share price is a full 28% lower, while the market is down , with a return of (-24%)..

On a more encouraging note the company has added CN¥562m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

See our latest analysis for Guangzhou Hengyun Enterprises Holding

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.

During five years of share price growth, Guangzhou Hengyun Enterprises Holding moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. So it's worth looking at other metrics to try to understand the share price move.

The modest 2.0% 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 10% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Guangzhou Hengyun Enterprises Holding further; while we may be missing something on this analysis, there might also be an opportunity.

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

We know that Guangzhou Hengyun Enterprises Holding has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Guangzhou Hengyun Enterprises Holding will earn in the future (free profit forecasts).

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Guangzhou Hengyun Enterprises Holding's TSR for the last 3 years was -28%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 10% in the twelve months, Guangzhou Hengyun Enterprises Holding shareholders did even worse, losing 20% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 0.5%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Guangzhou Hengyun Enterprises Holding better, we need to consider many other factors. For instance, we've identified 4 warning signs for Guangzhou Hengyun Enterprises Holding (1 doesn't sit too well with us) 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.