Design Capital (HKG:1545) shareholders notch a 2.4% CAGR over 3 years, yet earnings have been shrinking

While not a mind-blowing move, it is good to see that the Design Capital Limited (HKG:1545) share price has gained 14% in the last three months.

On a more encouraging note the company has added HK$18m 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.

Check out our latest analysis for Design Capital

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

Design Capital saw its EPS decline at a compound rate of 19% per year, over the last three years. In comparison the 10% compound annual share price decline isn't as bad as the EPS drop-off. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Dive deeper into Design Capital's key metrics by checking this interactive graph of Design Capital's earnings, revenue and cash flow.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Design Capital's TSR for the last 3 years was 7.5%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

The last twelve months weren't great for Design Capital shares, which performed worse than the market, costing holders 20%, including dividends. Meanwhile, the broader market slid about 5.8%, likely weighing on the stock. Investors are up over three years, booking 2.4% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. 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. For instance, we've identified 3 warning signs for Design Capital (1 makes us a bit uncomfortable) that you should be aware of.

For those who like to find winning investments this free list of growing 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 Hong Kong 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.