Hong Kong and China Gas' (HKG:3) earnings trajectory could turn positive as the stock increases 3.6% this past week

The Hong Kong and China Gas Company Limited (HKG:3) shareholders should be happy to see the share price up 11% in the last quarter. But that is little comfort to those holding over the last half decade, sitting on a big loss. Indeed, the share price is down 60% in the period. Some might say the recent bounce is to be expected after such a bad drop. We'd err towards caution given the long term under-performance.

Although the past week has been more reassuring for shareholders, they're still in the red over the last five years, so let's see if the underlying business has been responsible for the decline.

Check out our latest analysis for Hong Kong and China Gas

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 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.

Looking back five years, both Hong Kong and China Gas' share price and EPS declined; the latter at a rate of 8.2% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 17% per year, over the period. This implies that the market was previously too optimistic about the stock.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Hong Kong and China Gas has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Hong Kong and China Gas' TSR for the last 5 years was -52%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Hong Kong and China Gas shareholders are down 11% for the year (even including dividends), but the market itself is up 3.8%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 9% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It's always interesting to track share price performance over the longer term. But to understand Hong Kong and China Gas better, we need to consider many other factors. Even so, be aware that Hong Kong and China Gas is showing 2 warning signs in our investment analysis , you should know about...

If you are like me, then you will not want to miss this free list of growing companies that insiders are 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.