The past three-year earnings decline for Texhong International Group (HKG:2678) likely explains shareholders long-term losses

It is doubtless a positive to see that the Texhong International Group Limited (HKG:2678) share price has gained some 40% in the last three months. But that doesn't help the fact that the three year return is less impressive. Truth be told the share price declined 36% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

On a more encouraging note the company has added HK$808m 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.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).

During five years of share price growth, Texhong International Group moved from a loss to profitability. We would usually expect to see the share price rise as a result. So given the share price is down it's worth checking some other metrics too.

It's quite likely that the declining dividend has caused some investors to sell their shares, pushing the price lower in the process. The revenue decline, at an annual rate of 5.9% over three years, might be considered salt in the wound.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We know that Texhong International Group has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Texhong International Group the TSR over the last 3 years was -28%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Texhong International Group provided a TSR of 23% over the last twelve months. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 0.2% per year over five year. It is possible that returns will improve along with the business fundamentals. It's always interesting to track share price performance over the longer term. But to understand Texhong International Group better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with Texhong International Group .

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.