Earnings are growing at Centre Testing International Group (SZSE:300012) but shareholders still don't like its prospects

Investing in stocks inevitably means buying into some companies that perform poorly. But long term Centre Testing International Group Co. Ltd. (SZSE:300012) shareholders have had a particularly rough ride in the last three year. So they might be feeling emotional about the 66% share price collapse, in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 51% lower in that time. The falls have accelerated recently, with the share price down 28% in the last three months.

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

See our latest analysis for Centre Testing International Group

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Although the share price is down over three years, Centre Testing International Group actually managed to grow EPS by 10% per year in that time. 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.

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

With a rather small yield of just 1.0% we doubt that the stock's share price is based on its dividend. Revenue is actually up 13% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching Centre Testing International Group more closely, as sometimes stocks fall unfairly. This could present an opportunity.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

Centre Testing International Group is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

While the broader market lost about 16% in the twelve months, Centre Testing International Group shareholders did even worse, losing 50% (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 1.0% 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. Is Centre Testing International Group cheap compared to other companies? These 3 valuation measures might help you decide.

But note: Centre Testing International Group 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.

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