It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But in contrast you can make much more than 100% if the company does well. For instance the Jiangxi Xinyu Guoke Technology Co., Ltd (SZSE:300722) share price is 151% higher than it was three years ago. Most would be happy with that. It's also good to see the share price up 20% over the last quarter. But this move may well have been assisted by the reasonably buoyant market (up 13% in 90 days).

In light of the stock dropping 5.9% 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.

Check out our latest analysis for Jiangxi Xinyu Guoke Technology

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over the last three years, Jiangxi Xinyu Guoke Technology failed to grow earnings per share, which fell 3.7% (annualized).

Given the share price resilience, we don't think the (declining) EPS numbers are a good measure of how the business is moving forward, right now. So other metrics may hold the key to understanding what is influencing investors.

Languishing at just 0.5%, we doubt the dividend is doing much to prop up the share price. It could be that the revenue growth of 14% per year is viewed as evidence that Jiangxi Xinyu Guoke Technology is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

If you are thinking of buying or selling Jiangxi Xinyu Guoke Technology stock, you should check out this FREE detailed report on its balance sheet.

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. We note that for Jiangxi Xinyu Guoke Technology the TSR over the last 3 years was 157%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Jiangxi Xinyu Guoke Technology shareholders are down 34% for the year (even including dividends), falling short of the market return. Meanwhile, the broader market slid about 9.0%, likely weighing on the stock. Fortunately the longer term story is brighter, with total returns averaging about 37% per year over three years. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 1 warning sign for Jiangxi Xinyu Guoke Technology you should be aware of.

We will like Jiangxi Xinyu Guoke Technology better if we see some big insider buys. While we wait, check out this free list of growing companies 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 CN 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.