China New Town Development's (HKG:1278) 5,091% YoY earnings expansion surpassed the shareholder returns over the past year

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But you can significantly boost your returns by picking above-average stocks. For example, the China New Town Development Company Limited (HKG:1278) share price is up 58% in the last 1 year, clearly besting the market return of around 1.9% (not including dividends). So that should have shareholders smiling. Unfortunately the longer term returns are not so good, with the stock falling 47% in the last three years.

Since the stock has added HK$175m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for China New Town Development

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 last year China New Town Development grew its earnings per share, moving from a loss to a profit.

When a company is just on the edge of profitability it can be well worth considering other metrics in order to more precisely gauge growth (and therefore understand share price movements).

We note that the most recent dividend payment is higher than the payment a year ago, so that may have assisted the share price. It could be that the company is reaching maturity and dividend investors are buying for the yield, pushing the price up in the process. Though we must add that the revenue growth of 13% year on year would have helped paint a pretty picture.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

If you are thinking of buying or selling China New Town Development stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for China New Town Development the TSR over the last 1 year was 63%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that China New Town Development has rewarded shareholders with a total shareholder return of 63% in the last twelve months. Of course, that includes the dividend. That certainly beats the loss of about 7% 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. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for China New Town Development (of which 1 makes us a bit uncomfortable!) you should know about.

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.