The five-year loss for UMP Healthcare Holdings (HKG:722) shareholders likely driven by its shrinking earnings

While not a mind-blowing move, it is good to see that the UMP Healthcare Holdings Limited (HKG:722) share price has gained 25% in the last three months. But over the last half decade, the stock has not performed well. In fact, the share price is down 59%, which falls well short of the return you could get by buying an index fund.

On a more encouraging note the company has added HK$40m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

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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 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 five years over which the share price declined, UMP Healthcare Holdings' earnings per share (EPS) dropped by 12% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 16% per year, over the period. This implies that the market is more cautious about the business these days. The low P/E ratio of 9.69 further reflects this reticence.

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

It might be well worthwhile taking a look at our free report on UMP Healthcare Holdings' earnings, revenue and cash flow.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, UMP Healthcare Holdings' TSR for the last 5 years was -44%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

UMP Healthcare Holdings provided a TSR of 27% over the last twelve months. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 8% endured over half a decade. It could well be that the business is stabilizing. 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. To that end, you should learn about the 3 warning signs we've spotted with UMP Healthcare Holdings (including 1 which is a bit concerning) .

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.