Most people feel a little frustrated if a stock they own goes down in price. But in the short term the market is a voting machine, and the share price movements may not reflect the underlying business performance. So while the Chengdu Galaxy Magnets Co.,Ltd. (SZSE:300127) share price is down 14% in the last year, the total return to shareholders (which includes dividends) was -12%. That's better than the market which declined 13% over the last year. Taking the longer term view, the stock fell 11% over the last three years. The share price has dropped 18% in three months.

If the past week is anything to go by, investor sentiment for Chengdu Galaxy MagnetsLtd isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Unfortunately Chengdu Galaxy MagnetsLtd reported an EPS drop of 1.8% for the last year. This reduction in EPS is not as bad as the 14% share price fall. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Chengdu Galaxy MagnetsLtd, it has a TSR of -12% for the last 1 year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Chengdu Galaxy MagnetsLtd shareholders are down 12% over twelve months (even including dividends), which isn't far from the market return of -13%. The silver lining is that longer term investors would have made a total return of 3% per year over half a decade. 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. For instance, we've identified 2 warning signs for Chengdu Galaxy MagnetsLtd that you should be aware of.

But note: Chengdu Galaxy MagnetsLtd may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.