GreenTree Hospitality Group's (NYSE:GHG) earnings have declined over five years, contributing to shareholders 70% loss

While not a mind-blowing move, it is good to see that the GreenTree Hospitality Group Ltd. (NYSE:GHG) share price has gained 16% in the last three months. But that doesn't change the fact that the returns over the last half decade have been disappointing. In that time the share price has delivered a rude shock to holders, who find themselves down 72% after a long stretch. 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.

While the stock has risen 15% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

View our latest analysis for GreenTree Hospitality Group

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Looking back five years, both GreenTree Hospitality Group's share price and EPS declined; the latter at a rate of 12% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 23% per year, over the period. This implies that the market was previously too optimistic about the stock. The low P/E ratio of 8.02 further reflects this reticence.

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

We know that GreenTree Hospitality Group has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

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 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of GreenTree Hospitality Group, it has a TSR of -70% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

GreenTree Hospitality Group 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 11% 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. Even so, be aware that GreenTree Hospitality Group is showing 1 warning sign in our investment analysis , you should know about...

Of course GreenTree Hospitality Group 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 American 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.