Optimism for Jilin Province Chuncheng Heating (HKG:1853) has grown this past week, despite five-year decline in earnings

This week we saw the Jilin Province Chuncheng Heating Company Limited (HKG:1853) share price climb by 18%. But if you look at the last five years the returns have not been good. After all, the share price is down 18% in that time, significantly under-performing the market.

On a more encouraging note the company has added HK$112m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

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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.

Looking back five years, both Jilin Province Chuncheng Heating's share price and EPS declined; the latter at a rate of 9.4% per year. The share price decline of 4% per year isn't as bad as the EPS decline. So the market may previously have expected a drop, or else it expects the situation will improve.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Dive deeper into Jilin Province Chuncheng Heating's key metrics by checking this interactive graph of Jilin Province Chuncheng Heating's earnings, revenue and cash flow.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Jilin Province Chuncheng Heating, it has a TSR of 10% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Jilin Province Chuncheng Heating shareholders gained a total return of 15% during the year. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it's actually better than the average return of 2% over half a decade This suggests the company might be improving over time. 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. Case in point: We've spotted 3 warning signs for Jilin Province Chuncheng Heating you should be aware of, and 1 of them is concerning.

Of course Jilin Province Chuncheng Heating may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.