0.05% earnings growth over 5 years has not materialized into gains for HUAYU Automotive Systems (SHSE:600741) shareholders over that period

For many, the main point of investing is to generate higher returns than the overall market. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in HUAYU Automotive Systems Company Limited (SHSE:600741), since the last five years saw the share price fall 40%. Shareholders have had an even rougher run lately, with the share price down 14% in the last 90 days. Of course, this share price action may well have been influenced by the 13% decline in the broader market, throughout the period.

Since HUAYU Automotive Systems has shed CN¥2.0b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

Check out our latest analysis for HUAYU Automotive Systems

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the unfortunate half decade during which the share price slipped, HUAYU Automotive Systems actually saw its earnings per share (EPS) improve by 0.2% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

By glancing at these numbers, we'd posit that the the market had expectations of much higher growth, five years ago. Having said that, we might get a better idea of what's going on with the stock by looking at other metrics.

We note that the dividend has fallen in the last five years, so that may have contributed to the share price decline.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

HUAYU Automotive Systems is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling HUAYU Automotive Systems stock, you should check out this free report showing analyst consensus estimates for future profits.

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 HUAYU Automotive Systems the TSR over the last 5 years was -26%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market lost about 16% in the twelve months, HUAYU Automotive Systems shareholders did even worse, losing 20% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand HUAYU Automotive Systems better, we need to consider many other factors. Take risks, for example - HUAYU Automotive Systems has 1 warning sign we think you should be aware of.

But note: HUAYU Automotive Systems may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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