China Lesso Group Holdings' (HKG:2128) earnings have declined over three years, contributing to shareholders 74% loss

China Lesso Group Holdings Limited (HKG:2128) shareholders will doubtless be very grateful to see the share price up 52% in the last month. But only the myopic could ignore the astounding decline over three years. In that time the share price has melted like a snowball in the desert, down 77%. So it sure is nice to see a bit of an improvement. But the more important question is whether the underlying business can justify a higher price still.

While the last three years has been tough for China Lesso Group Holdings shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

See our latest analysis for China Lesso Group Holdings

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

China Lesso Group Holdings saw its EPS decline at a compound rate of 14% per year, over the last three years. The share price decline of 38% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. The less favorable sentiment is reflected in its current P/E ratio of 5.47.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, China Lesso Group Holdings' TSR for the last 3 years was -74%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

China Lesso Group Holdings shareholders are down 19% for the year (even including dividends), but the market itself is up 6.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 0.7% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand China Lesso Group Holdings better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for China Lesso Group Holdings you should be aware of.

China Lesso Group Holdings is not the only stock that insiders are buying. For those who like to find lesser know companies 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.