Despite the downward trend in earnings for Gain Plus Holdings (HKG:9900), the stock is up 17%, representing a one-year gain of 159%.

When you buy shares in a company, there is always a risk that the price will fall to zero. But if you choose the right company to buy shares, you can make more than you lose. Take for example Gain Plus Holdings Limited (HKG:9900). The share price has already risen an impressive 129% in the last twelve months. The growth of 57% in the last three months was also pleasing for shareholders. However, the stock hasn’t performed so well over the longer term, with the stock only up 13% in three years.

With the stock increasing its market capitalization by HK$126 million in the past week alone, let’s see if the underlying performance has translated into long-term returns.

Check out our latest analysis for Gain Plus Holdings

In his essay The super investors of Graham and Doddsville Warren Buffett described how stock prices do not always rationally reflect the value of a company. 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).

Over the last year, Gain Plus Holdings actually saw its earnings per share decline by 51%.

This means the market is unlikely to judge the company based on earnings growth. Therefore, it is likely that investors are currently placing more weight on metrics other than earnings per share.

With no improvement, we don’t think dividend hunger is driving up Gain Plus Holdings’ share price. Sales fell by 4.9% within twelve months. Usually this is accompanied by a lower share price, but let’s face it, the market’s fluctuations are sometimes only as clear as mud.

The company’s earnings and revenue (over time) are depicted in the image below (click to see the exact numbers).

The free Gain Plus Holdings’ interactive balance sheet strength report is a good place to start if you want to investigate the stock further.

What about dividends?

In addition to measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, as well as any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often much higher than the share price return. In the case of Gain Plus Holdings, the TSR for the last year is 159%. This exceeds the share price return mentioned above. And it’s not worth guessing that dividend payments largely explain the divergence!

A different perspective

It’s good to see that Gain Plus Holdings has rewarded shareholders with a total return of 159% over the last twelve months. Of course, this also includes the dividend. That’s better than its annual return of 12% over half a decade, meaning the company has been doing better recently. Someone with an optimistic perspective might see the recent improvement in TSR as an indication that the business itself is getting better over time. I find it very interesting to look at the share price as an indicator of business development in the long term. But to gain real insight, we need to consider other information too. Consider, for example, the ever-present specter of investment risk. We’ve identified two warning signs with Gain Plus Holdings (at least 1, which doesn’t sit well with us) and understanding them should be part of your investment process.

Naturally Gain Plus Holdings may not be the best stock to buy. Maybe you would like to see this free Collection of growth stocks.

Please note that 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 from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.