The three-year loss for Tencent Holdings (HKG:700) shareholders likely driven by its shrinking earnings

While not a mind-blowing move, it is good to see that the Tencent Holdings Limited (HKG:700) share price has gained 24% in the last three months. But that cannot eclipse the less-than-impressive returns over the last three years. After all, the share price is down 44% in the last three years, significantly under-performing the market.

The recent uptick of 15% could be a positive sign of things to come, so let's take a look at historical fundamentals.

View our latest analysis for Tencent Holdings

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the three years that the share price fell, Tencent Holdings' earnings per share (EPS) dropped by 9.8% each year. The share price decline of 18% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Tencent Holdings, it has a TSR of -38% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Tencent Holdings shareholders have received a total shareholder return of 1.9% over the last year. That's including the dividend. That certainly beats the loss of about 0.1% 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. It's always interesting to track share price performance over the longer term. But to understand Tencent Holdings better, we need to consider many other factors. For instance, we've identified 1 warning sign for Tencent Holdings that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.