While shareholders of KG Eco SolutionLtd (KOSDAQ:151860) are in the red over the last three years, underlying earnings have actually grown

KG Eco Solution Co.,Ltd. (KOSDAQ:151860) shareholders should be happy to see the share price up 14% in the last quarter. But that doesn't change the fact that the returns over the last three years have been disappointing. Indeed, the share price is down a tragic 61% in the last three years. So it's good to see it climbing back up. Perhaps the company has turned over a new leaf.

On a more encouraging note the company has added ₩24b to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

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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 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).

Although the share price is down over three years, KG Eco SolutionLtd actually managed to grow EPS by 23% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

We note that, in three years, revenue has actually grown at a 25% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching KG Eco SolutionLtd more closely, as sometimes stocks fall unfairly. This could present an opportunity.

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

This free interactive report on KG Eco SolutionLtd's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, KG Eco SolutionLtd's TSR for the last 3 years was -59%, 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

We regret to report that KG Eco SolutionLtd shareholders are down 22% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 0.9%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 10% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Take risks, for example - KG Eco SolutionLtd has 1 warning sign we think you should be aware of.

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