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It is a pleasure to report that the GreenTree Hospitality Group Ltd. (NYSE:GHG) is up 32% in the last quarter. But that can't change the reality that over the longer term (five years), the returns have been really quite dismal. Indeed, the share price is down 69% in the period. Some might say the recent bounce is to be expected after such a bad drop. However, in the best case scenario (far from fait accompli), this improved performance might be sustained.
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's driven the five-year loss for shareholders.
Check out our latest analysis for GreenTree Hospitality Group
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Looking back five years, both GreenTree Hospitality Group's share price and EPS declined; the latter at a rate of 12% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 21% per year, over the period. This implies that the market is more cautious about the business these days. The less favorable sentiment is reflected in its current P/E ratio of 9.19.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that GreenTree Hospitality Group has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for GreenTree Hospitality Group the TSR over the last 5 years was -66%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 34% in the last year, GreenTree Hospitality Group shareholders lost 26% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 11% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand GreenTree Hospitality Group better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for GreenTree Hospitality Group you should know about.