Arts Optical International Holdings (HKG:1120) shareholders notch a 32% CAGR over 3 years, yet earnings have been shrinking

It hasn't been the best quarter for Arts Optical International Holdings Limited (HKG:1120) shareholders, since the share price has fallen 15% in that time. But don't let that distract from the very nice return generated over three years. To wit, the share price did better than an index fund, climbing 92% during that period.

Since it's been a strong week for Arts Optical International Holdings shareholders, let's have a look at trend of the longer term fundamentals.

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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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the three years of share price growth, Arts Optical International Holdings actually saw its earnings per share (EPS) drop 18% per year.

So we doubt that the market is looking to EPS for its main judge of the company's value. Given this situation, it makes sense to look at other metrics too.

Do you think that shareholders are buying for the 2.9% per annum revenue growth trend? We don't. So truth be told we can't see an easy explanation for the share price action, but perhaps you can...

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

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Arts Optical International Holdings' earnings, revenue and cash flow.

What About The Total Shareholder Return (TSR)?

We've already covered Arts Optical International Holdings' share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Arts Optical International Holdings' TSR of 132% over the last 3 years is better than the share price return.

A Different Perspective

It's good to see that Arts Optical International Holdings has rewarded shareholders with a total shareholder return of 45% in the last twelve months. That gain is better than the annual TSR over five years, which is 7%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Take risks, for example - Arts Optical International Holdings has 3 warning signs (and 1 which is potentially serious) we think you should know about.

Arts Optical International 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.