As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term H World Group Limited (NASDAQ:HTHT) shareholders have had that experience, with the share price dropping 36% in three years, versus a market return of about 19%. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days.

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 the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 five years of share price growth, H World Group moved from a loss to profitability. We would usually expect to see the share price rise as a result. So given the share price is down it's worth checking some other metrics too.

Given the healthiness of the dividend payments, we doubt that they've concerned the market. It's good to see that H World Group has increased its revenue over the last three years. But it's not clear to us why the share price is down. It might be worth diving deeper into the fundamentals, lest an opportunity goes begging.

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

H World Group is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling H World Group stock, you should check out this free report showing analyst consensus estimates for future profits.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of H World Group, it has a TSR of -34% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in H World Group had a tough year, with a total loss of 12% (including dividends), against a market gain of about 25%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.6% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Even so, be aware that H World Group is showing 1 warning sign in our investment analysis , you should know about...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com