The three-year underlying earnings growth at Bank of Ningbo (SZSE:002142) is promising, but the shareholders are still in the red over that time

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that's been the case for longer term Bank of Ningbo Co., Ltd. (SZSE:002142) shareholders, since the share price is down 45% in the last three years, falling well short of the market decline of around 25%. More recently, the share price has dropped a further 13% in a month. We do note, however, that the broader market is down 7.1% in that period, and this may have weighed on the share price.

If the past week is anything to go by, investor sentiment for Bank of Ningbo isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

View our latest analysis for Bank of Ningbo

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Although the share price is down over three years, Bank of Ningbo actually managed to grow EPS by 15% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

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

We note that, in three years, revenue has actually grown at a 15% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Bank of Ningbo further; while we may be missing something on this analysis, there might also be an opportunity.

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

Bank of Ningbo is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Bank of Ningbo in this interactive graph of future profit 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 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 Bank of Ningbo the TSR over the last 3 years was -39%, 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 it's certainly disappointing to see that Bank of Ningbo shares lost 11% throughout the year, that wasn't as bad as the market loss of 14%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 0.8% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand Bank of Ningbo better, we need to consider many other factors. For instance, we've identified 1 warning sign for Bank of Ningbo that you should be aware of.

Of course Bank of Ningbo 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 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.

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