Investors' Three-Year Returns In Daqo New Energy Stock Trail Earnings Growth

Daqo New Energy Corp. (NYSE:DQ) shareholders have seen the share price descend 27% over the month. But that doesn't change the fact that the returns over the last three years have been very strong. In three years the stock price has launched 255% higher: a great result. After a run like that some may not be surprised to see prices moderate. If the business can perform well for years to come, then the recent drop could be an opportunity.

In light of the stock dropping 4.7% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.

View our latest analysis for Daqo New Energy

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

During three years of share price growth, Daqo New Energy achieved compound earnings per share growth of 289% per year. The average annual share price increase of 52% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock. We'd venture the lowish P/E ratio of 1.78 also reflects the negative sentiment around the stock.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Daqo New Energy has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Daqo New Energy's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

While it's never nice to take a loss, Daqo New Energy shareholders can take comfort that their trailing twelve month loss of 4.2% wasn't as bad as the market loss of around 22%. Longer term investors wouldn't be so upset, since they would have made 24%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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 Daqo New Energy is showing 2 warning signs in our investment analysis , you should know about...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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