Earnings growth of 2.7% over 1 year hasn't been enough to translate into positive returns for New Hope Service Holdings (HKG:3658) shareholders

Most people feel a little frustrated if a stock they own goes down in price. But often it is not a reflection of the fundamental business performance. The New Hope Service Holdings Limited (HKG:3658) is down 32% over a year, but the total shareholder return is -20% once you include the dividend. And that total return actually beats the market decline of 21%. New Hope Service Holdings may have better days ahead, of course; we've only looked at a one year period. The last week also saw the share price slip down another 14%.

If the past week is anything to go by, investor sentiment for New Hope Service Holdings isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

See our latest analysis for New Hope Service Holdings

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. 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).

Even though the New Hope Service Holdings share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.

It seems quite likely that the market was expecting higher growth from the stock. But looking to other metrics might better explain the share price change.

We don't see any weakness in the New Hope Service Holdings' dividend so the steady payout can't really explain the share price drop. The revenue trend doesn't seem to explain why the share price is down. Of course, it could simply be that it simply fell short of the market consensus expectations.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

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

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. As it happens, New Hope Service Holdings' TSR for the last 1 year was -20%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Having lost 20% over the year, including dividends, New Hope Service Holdings has generated a return within the same ballpark as the broader market. Unfortunately, last year's performance may indicate unresolved challenges, and the share price has continued to drop, down 10.0% over the last three months. Most people would be understandably disheartened by this sort of performance, given the lack of a long term history. 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 2 warning signs for New Hope Service Holdings you should be aware of, and 1 of them makes us a bit uncomfortable.

But note: New Hope Service Holdings may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.