Despite the downward trend in earnings at Changchun FAWAY Automobile ComponentsLtd (SHSE:600742) the stock ascends 7.7%, bringing five-year gains to 2.9%

Changchun FAWAY Automobile Components Co.,Ltd (SHSE:600742) shareholders should be happy to see the share price up 10% in the last month. But over the last half decade, the stock has not performed well. In fact, the share price is down 11%, which falls well short of the return you could get by buying an index fund.

The recent uptick of 7.7% could be a positive sign of things to come, so let's take a look at historical fundamentals.

Check out our latest analysis for Changchun FAWAY Automobile ComponentsLtd

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. 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.

Looking back five years, both Changchun FAWAY Automobile ComponentsLtd's share price and EPS declined; the latter at a rate of 0.4% per year. This reduction in EPS is less than the 2% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 11.33.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It might be well worthwhile taking a look at our free report on Changchun FAWAY Automobile ComponentsLtd's earnings, revenue and cash flow.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Changchun FAWAY Automobile ComponentsLtd the TSR over the last 5 years was 2.9%, 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

While it's never nice to take a loss, Changchun FAWAY Automobile ComponentsLtd shareholders can take comfort that , including dividends,their trailing twelve month loss of 5.8% wasn't as bad as the market loss of around 10%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 0.6% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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. For example, we've discovered 2 warning signs for Changchun FAWAY Automobile ComponentsLtd that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.