Despite Qijing Machinery’s (SHSE:603677) declining earnings trend, the stock is up 10%, representing a three-year gain of 25%.

By purchasing an index fund, you can easily approximate the market return. But many of us dare to dream of bigger returns and build a portfolio ourselves. For example, Qijing Machinery Co., Ltd. (SHSE:603677) Shareholders saw an 18% increase in the share price over three years, well above the market decline (19%, excluding dividends).

Since the stock has increased its market cap by CN¥221 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 Qijing Machinery

To paraphrase Benjamin Graham: In the short term the market is a voting machine, but in the long term it is 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).

Over the past three years, Qijing Machinery failed to grow earnings per share, which fell by 3.0% (annualized).

Companies don’t always focus on short-term EPS growth, and given the share price reaction, we don’t believe EPS is the most important metric for Qijing Machinery right now. Therefore, other metrics could be key to understanding what influences investors.

The modest dividend yield of 1.6% is unlikely to support the share price. The 3.0% drop in revenue is as disappointing as some politicians. It is clear that historical earnings and sales do not correspond to the share price movement, not at all. Therefore, you may need to dig deeper to understand the situation

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

Take a closer look at Qijing Machinery’s financial health here free Report on its balance sheet.

What about dividends?

When considering investment returns, it is important to consider the difference between Total shareholder return (TSR) and Stock 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. So for companies that pay a generous dividend, the TSR is often much higher than the share price return. In the case of Qijing Machinery, the TSR for the last three years was 25%. This exceeds the share price return mentioned above. And it’s not worth guessing that dividend payments largely explain the divergence!

A different perspective

Qijing Machinery investors had a difficult year, with a total loss of 8.0% (including dividends) versus a market gain of around 9.3%. Even the share prices of good stocks fall sometimes, but we want to see improvements in a company’s fundamental metrics before getting too interested. Longer-term investors wouldn’t be as upset since they would have earned 3% each year over five years. It could be that the recent sell-off represents an opportunity, so it might be worth checking the fundamentals for signs of a long-term growth trend. It is always interesting to follow the development of the share price over the longer term. But to better understand Qijing Machinery, we need to consider many other factors. For example, we identified 2 warning signs for Qijing Machinery (1 doesn’t work well for us), you should keep that in mind.

If you’re like me, then you will not I want to miss this free List of undervalued small caps that insiders are buying.

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