For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Jason Furniture (Hangzhou) Co.,Ltd. (SHSE:603816) shareholders have had that experience, with the share price dropping 51% in three years, versus a market decline of about 19%. Unfortunately the share price momentum is still quite negative, with prices down 14% in thirty days.

Since Jason Furniture (Hangzhou)Ltd has shed CN¥1.6b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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. 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, Jason Furniture (Hangzhou)Ltd actually saw its earnings per share (EPS) improve by 13% 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). Alternatively, growth expectations may have been unreasonable in the past.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We note that, in three years, revenue has actually grown at a 12% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Jason Furniture (Hangzhou)Ltd more closely, as sometimes stocks fall unfairly. This could present an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Jason Furniture (Hangzhou)Ltd is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Jason Furniture (Hangzhou)Ltd in this interactive graph of future profit estimates.

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. We note that for Jason Furniture (Hangzhou)Ltd the TSR over the last 3 years was -48%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Jason Furniture (Hangzhou)Ltd shareholders are down 12% over twelve months (even including dividends), which isn't far from the market return of -14%. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. 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 Jason Furniture (Hangzhou)Ltd is showing 1 warning sign in our investment analysis , you should know about...

We will like Jason Furniture (Hangzhou)Ltd 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 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.