It's been a soft week for Goodbaby International Holdings Limited (HKG:1086) shares, which are down 12%. While that might be a setback, it doesn't negate the nice returns received over the last twelve months. Looking at the full year, the company has easily bested an index fund by gaining 58%.

While this past week has detracted from the company's one-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

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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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the last year Goodbaby International Holdings grew its earnings per share (EPS) by 75%. This EPS growth is significantly higher than the 58% increase in the share price. So it seems like the market has cooled on Goodbaby International Holdings, despite the growth. Interesting. The caution is also evident in the lowish P/E ratio of 4.97.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Goodbaby International Holdings' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Goodbaby International Holdings, it has a TSR of 68% 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

It's nice to see that Goodbaby International Holdings shareholders have received a total shareholder return of 68% over the last year. That's including the dividend. That certainly beats the loss of about 3% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Goodbaby International Holdings has 1 warning sign we think you should be aware of.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap companies that insiders are buying.

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

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