Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Inner Mongolia Yili Industrial Group Co., Ltd. (SHSE:600887) shareholders, since the share price is down 29% in the last three years, falling well short of the market decline of around 15%.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 the unfortunate three years of share price decline, Inner Mongolia Yili Industrial Group actually saw its earnings per share (EPS) improve by 8.3% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.
It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. We like that Inner Mongolia Yili Industrial Group has actually grown its revenue over the last three years. If the company can keep growing revenue, there may be an opportunity for investors. You might have to dig deeper to understand the recent share price weakness.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Inner Mongolia Yili Industrial Group is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Inner Mongolia Yili Industrial Group in this interactive graph of future profit estimates.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Inner Mongolia Yili Industrial Group's TSR for the last 3 years was -21%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Inner Mongolia Yili Industrial Group shareholders gained a total return of 10% during the year. Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 1.5% per year over five year. This suggests the company might be improving over time. Before forming an opinion on Inner Mongolia Yili Industrial Group you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, 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 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.