Investors in China General Plastics (TWSE:1305) from three years ago are still down 58%, even after 14% gain this past week

It's nice to see the China General Plastics Corporation (TWSE:1305) share price up 14% in a week. 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 63% in the last three years. So it is really good to see an improvement. The rise has some hopeful, but turnarounds are often precarious.

On a more encouraging note the company has added NT$901m 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.

See our latest analysis for China General Plastics

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 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.

China General Plastics saw its share price decline over the three years in which its EPS also dropped, 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 image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It might be well worthwhile taking a look at our free report on China General Plastics' 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). 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. We note that for China General Plastics the TSR over the last 3 years was -58%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

China General Plastics shareholders are down 37% for the year (even including dividends), but the market itself is up 34%. 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 4% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. For example, we've discovered 1 warning sign for China General Plastics that you should be aware of before investing here.

We will like China General Plastics better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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