While shareholders of Shanghai Haohai Biological Technology (HKG:6826) are in the red over the last three years, underlying earnings have actually grown

Shanghai Haohai Biological Technology Co., Ltd. (HKG:6826) shareholders should be happy to see the share price up 11% in the last week. But that cannot eclipse the less-than-impressive returns over the last three years. In fact, the share price is down 25% in the last three years, falling well short of the market return.

On a more encouraging note the company has added HK$740m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

See our latest analysis for Shanghai Haohai Biological Technology

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the unfortunate three years of share price decline, Shanghai Haohai Biological Technology actually saw its earnings per share (EPS) improve by 15% per year. 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.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

Revenue is actually up 19% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching Shanghai Haohai Biological Technology more closely, as sometimes stocks fall unfairly. This could present an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. If you are thinking of buying or selling Shanghai Haohai Biological Technology stock, you should check out this free report showing analyst profit forecasts.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Shanghai Haohai Biological Technology the TSR over the last 3 years was -19%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Shanghai Haohai Biological Technology shareholders are up 7.5% for the year (even including dividends). But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 5% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. If you would like to research Shanghai Haohai Biological Technology in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

We will like Shanghai Haohai Biological Technology 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.