Earnings growth of 2.8% over 5 years hasn't been enough to translate into positive returns for Ningbo Xusheng Group (SHSE:603305) shareholders

Ningbo Xusheng Group Co., Ltd. (SHSE:603305) shareholders should be happy to see the share price up 23% in the last quarter. But if you look at the last five years the returns have not been good. In fact, the share price is down 41%, which falls well short of the return you could get by buying an index fund.

With the stock having lost 7.4% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

View our latest analysis for Ningbo Xusheng Group

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 half decade during which the share price slipped, Ningbo Xusheng Group actually saw its earnings per share (EPS) improve by 15% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Alternatively, growth expectations may have been unreasonable in the past.

Because of the sharp contrast between the EPS growth rate and the share price growth, we're inclined to look to other metrics to understand the changing market sentiment around the stock.

We don't think that the 1.4% is big factor in the share price, since it's quite small, as dividends go. In contrast to the share price, revenue has actually increased by 30% a year in the five year period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Ningbo Xusheng Group is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Ningbo Xusheng Group will earn in the future (free analyst consensus estimates)

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Ningbo Xusheng Group's TSR for the last 5 years was -39%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Ningbo Xusheng Group shareholders gained a total return of 15% during the year. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 7% endured over half a decade. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand Ningbo Xusheng Group better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Ningbo Xusheng Group you should be aware of.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.