Earnings growth of 2.2% over 3 years hasn't been enough to translate into positive returns for Maike Tube Industry Holdings (HKG:1553) shareholders

For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term Maike Tube Industry Holdings Limited (HKG:1553) shareholders, since the share price is down 41% in the last three years, falling well short of the market decline of around 14%. And the ride hasn't got any smoother in recent times over the last year, with the price 35% lower in that time. More recently, the share price has dropped a further 25% in a month.

Since Maike Tube Industry Holdings has shed HK$56m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for Maike Tube Industry Holdings

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

Although the share price is down over three years, Maike Tube Industry Holdings actually managed to grow EPS by 6.7% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We note that the dividend has declined - a likely contributor to the share price drop. In contrast it does not seem particularly likely that the revenue levels are a concern for investors.

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

Take a more thorough look at Maike Tube Industry Holdings' financial health with this free report on its balance sheet.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Maike Tube Industry Holdings' TSR for the last 3 years was -27%, 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

The last twelve months weren't great for Maike Tube Industry Holdings shares, which performed worse than the market, costing holders 29%, including dividends. The market shed around 5.8%, no doubt weighing on the stock price. Shareholders have lost 8% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 3 warning signs for Maike Tube Industry Holdings that you should be aware of.

We will like Maike Tube Industry Holdings better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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.