While not a mind-blowing move, it is good to see that the Changchun FAWAY Automobile Components Co.,Ltd (SHSE:600742) share price has gained 15% in the last three months. But that doesn't change the fact that the returns over the last three years have been less than pleasing. In fact, the share price is down 26% in the last three years, falling well short of the market return.

With the stock having lost 6.7% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

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. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the three years that the share price fell, Changchun FAWAY Automobile ComponentsLtd's earnings per share (EPS) dropped by 16% each year. In comparison the 10% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

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

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Changchun FAWAY Automobile ComponentsLtd the TSR over the last 3 years was -19%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Changchun FAWAY Automobile ComponentsLtd shareholders are down 4.0% for the year (even including dividends), but the market itself is up 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 2% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Changchun FAWAY Automobile ComponentsLtd better, we need to consider many other factors. For instance, we've identified 3 warning signs for Changchun FAWAY Automobile ComponentsLtd (1 is potentially serious) that you should be aware of.

We will like Changchun FAWAY Automobile ComponentsLtd better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) 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.