Shenzhen Tongyi Industry (SZSE:300538) earnings and shareholder returns have been trending downwards for the last three years, but the stock rallies 19% this past week

Shenzhen Tongyi Industry Co., Ltd. (SZSE:300538) shareholders should be happy to see the share price up 19% in the last week. If you look at the last three years, the stock price is down. But on the bright side, its return of -18%, is better than the market, which is down 21%.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

See our latest analysis for Shenzhen Tongyi Industry

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Shenzhen Tongyi Industry saw its EPS decline at a compound rate of 5.2% per year, over the last three years. This fall in EPS isn't far from the rate of share price decline, which was 6% per year. So it seems like sentiment towards the stock hasn't changed all that much over time. It seems like the share price is reflecting the declining earnings per share.

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

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on Shenzhen Tongyi Industry's earnings, revenue and cash flow.

A Different Perspective

Although it hurts that Shenzhen Tongyi Industry returned a loss of 5.8% in the last twelve months, the broader market was actually worse, returning a loss of 10%. Given the total loss of 1.2% per year over five years, it seems returns have deteriorated in the last twelve months. Whilst Baron Rothschild does tell the investor "buy when there's blood in the streets, even if the blood is your own", buyers would need to examine the data carefully to be comfortable that the business itself is sound. 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 instance, we've identified 2 warning signs for Shenzhen Tongyi Industry (1 can't be ignored) that you should be aware of.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.