For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term CNMC Goldmine Holdings Limited (Catalist:5TP) shareholders have had that experience, with the share price dropping 30% in three years, versus a market decline of about 13%.

Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.

Check out our latest analysis for CNMC Goldmine Holdings

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 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.

During the unfortunate three years of share price decline, CNMC Goldmine Holdings actually saw its earnings per share (EPS) improve by 9.8% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

With a rather small yield of just 2.0% we doubt that the stock's share price is based on its dividend. Revenue is actually up 9.7% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating CNMC Goldmine Holdings further; while we may be missing something on this analysis, there might also be an opportunity.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Take a more thorough look at CNMC Goldmine Holdings' financial health with this free report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for CNMC Goldmine Holdings the TSR over the last 3 years was -26%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that CNMC Goldmine Holdings shareholders have received a total shareholder return of 8.7% over one year. That's including the dividend. That gain is better than the annual TSR over five years, which is 2%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with CNMC Goldmine Holdings (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

Of course CNMC Goldmine Holdings may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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