Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding GreenTree Hospitality Group Ltd. (NYSE:GHG) during the five years that saw its share price drop a whopping 78%. And the share price decline continued over the last week, dropping some 5.5%. However, this move may have been influenced by the broader market, which fell 3.5% in that time.

It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.

Check out our latest analysis for GreenTree Hospitality Group

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 five years over which the share price declined, GreenTree Hospitality Group's earnings per share (EPS) dropped by 14% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 26% 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 9.49.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

This free interactive report on GreenTree Hospitality Group's 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. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of GreenTree Hospitality Group, it has a TSR of -76% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

GreenTree Hospitality Group shareholders are down 18% for the year (even including dividends), but the market itself is up 14%. 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, longer term shareholders are suffering worse, given the loss of 12% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - GreenTree Hospitality Group has 2 warning signs (and 1 which is potentially serious) we think you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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