It is a pleasure to inform that GREEN TREE HOSPITALITY GROUP LIMITED (NYSE:GHG) is up 32 percent in the last quarter. But that doesn’t change the fact that over the long term (five years), returns have been pretty disappointing indeed. In fact, the stock is down 69% over that period. Some might say that the recent bounce is to be expected after such a bad decline. However, in the best case scenario (by far Absolute truth), this improved performance can be maintained.

On a more encouraging note, the company has added US$72m to its market cap in just the last 7 days, so let’s see if we can determine what caused the five-year loss for shareholders. is

Check out our latest analysis for Green Tree Hospitality Group

There’s no denying that markets are sometimes efficient, but prices don’t always reflect underlying business performance. An imperfect but convenient way to consider how the market perception of a company has changed is to compare the change in earnings per share (EPS) to the movement of the share price.

Looking back five years, both Green Tree Hospitality Group’s share price and EPS declined. The latter at the rate of 12% per annum. Readers should note that share price has fallen faster than EPS, at a rate of 21% per year, over this period. This means that the market is more cautious about business these days. Less favorable sentiment is reflected in its current P/E ratio of 9.19.

The graphic below shows how EPS has changed over time (click on the image to reveal the exact values).

We know that Greentree Hospitality Group has improved its bottom line recently, but will this increase earnings? If you are interested, you can check it out. free A report showing the consolidated income forecast.

What about profit?

Along with measuring share price returns, investors should also consider total shareholder return (TSR). TSR includes the value of any spin-off or discounted capital gains along with any profits, based on the assumption that the profits are reinvested. So for companies that pay generous dividends, the TSR is often much higher than the share price return. We note that the TSR over the last 5 years for Green Tree Hospitality Group was -66%, which is better than the share price return mentioned above. This is largely a result of its dividend payout!

A different perspective

While the broader market gained nearly 34% last year, Greentree Hospitality Group shareholders lost 26% (even including dividends). Even good stocks’ share prices sometimes fall, but we want to see an improvement in a business’s fundamental metrics before we get too interested. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the 11% annual loss over the past half-decade. We understand that Baron Rothschild said that investors should “buy when there’s blood in the streets,” but we caution that investors should first make sure they’re buying a high-quality business. It is always interesting to track share price performance over the long term. But to better understand Green Tree Hospitality Group, we need to consider many other factors. Consider risks, for example. Every company has them, and we’ve seen them. 1 warning sign for GreenTree Hospitality Group You should know about.

The story continues.

If you’d rather check out another company — one with possibly higher financials — don’t miss out. free A list of companies that have proven they can grow earnings.

Please note, the market return referenced in this article reflects the market-weighted average return of stocks that currently trade on US exchanges.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies and our articles are not intended as financial advice. It does not recommend buying or selling any stock, and does not take into account your objectives, or your financial situation. Our goal is to bring you long-term focused analysis based on fundamental data. Note that our analysis may not include the latest company announcements or qualitative content regarding pricing. Simply Wall St has no positions in any of the stocks mentioned.