Damai Entertainment Holdings' (HKG:1060) investors will be pleased with their splendid 213% return over the last three years

It hasn't been the best quarter for Damai Entertainment Holdings Limited (HKG:1060) shareholders, since the share price has fallen 18% in that time. But in three years the returns have been great. In fact, the share price is up a full 213% compared to three years ago. To some, the recent share price pullback wouldn't be surprising after such a good run. The thing to consider is whether the underlying business is doing well enough to support the current price.

So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.

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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).

Damai Entertainment Holdings was able to grow its EPS at 24% per year over three years, sending the share price higher. In comparison, the 46% per year gain in the share price outpaces the EPS growth. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress. This optimism is also reflected in the fairly generous P/E ratio of 73.07.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

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

A Different Perspective

It's nice to see that Damai Entertainment Holdings shareholders have received a total shareholder return of 109% over the last year. That certainly beats the loss of about 2% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. Case in point: We've spotted 1 warning sign for Damai Entertainment Holdings you should be aware of.

We will like Damai Entertainment Holdings better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) 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.