If You Had Bought China New Town Development's (HKG:1278) Shares Three Years Ago You Would Be Down 53%

China New Town Development Company Limited (HKG:1278) shareholders should be happy to see the share price up 25% in the last quarter. But that doesn't change the fact that the returns over the last three years have been less than pleasing. Truth be told the share price declined 53% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

Check out our latest analysis for China New Town Development

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Over the three years that the share price declined, China New Town Development's earnings per share (EPS) dropped significantly, falling to a loss. Due to the loss, it's not easy to use EPS as a reliable guide to the business. However, we can say we'd expect to see a falling share price in this scenario.

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

Dive deeper into China New Town Development's key metrics by checking this interactive graph of China New Town Development's earnings, revenue and cash flow.

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. 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 3 years was -47%, 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

China New Town Development shareholders are down 11% for the year (even including dividends), but the market itself is up 20%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand China New Town Development better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for China New Town Development (of which 2 shouldn't be ignored!) you should know about.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.

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This article by Simply Wall St is general in nature. 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.
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