China Lesso Group Holdings' (HKG:2128) earnings have declined over three years, contributing to shareholders 58% loss

While it may not be enough for some shareholders, we think it is good to see the China Lesso Group Holdings Limited (HKG:2128) share price up 20% in a single quarter. But that doesn't change the fact that the returns over the last three years have been disappointing. Regrettably, the share price slid 65% in that period. So it is really good to see an improvement. While many would remain nervous, there could be further gains if the business can put its best foot forward.

On a more encouraging note the company has added HK$496m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

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To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

During the three years that the share price fell, China Lesso Group Holdings' earnings per share (EPS) dropped by 18% each year. The share price decline of 29% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. This increased caution is also evident in the rather low P/E ratio, which is sitting at 7.03.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on China Lesso Group Holdings' earnings, revenue and cash flow.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, China Lesso Group Holdings' TSR for the last 3 years was -58%, 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

It's good to see that China Lesso Group Holdings has rewarded shareholders with a total shareholder return of 41% in the last twelve months. That's including the dividend. That certainly beats the loss of about 8% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. 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 China Lesso Group Holdings is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...

China Lesso Group Holdings is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, 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 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.