Hainan Jingliang Holdings (SZSE:000505) shareholders notch a 7.2% CAGR over 5 years, yet earnings have been shrinking

When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, long term Hainan Jingliang Holdings Co., Ltd. (SZSE:000505) shareholders have enjoyed a 40% share price rise over the last half decade, well in excess of the market return of around 18% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 4.3% in the last year, including dividends.

Since it's been a strong week for Hainan Jingliang Holdings shareholders, let's have a look at trend of the longer term fundamentals.

See our latest analysis for Hainan Jingliang Holdings

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 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).

Hainan Jingliang Holdings' earnings per share are down 19% per year, despite strong share price performance over five years.

This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the modest 0.9% dividend yield is attracting many buyers to the stock. In contrast revenue growth of 12% per year is probably viewed as evidence that Hainan Jingliang Holdings is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

This free interactive report on Hainan Jingliang Holdings' balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Hainan Jingliang Holdings provided a TSR of 4.3% over the last twelve months. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 7% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. 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. To that end, you should learn about the 4 warning signs we've spotted with Hainan Jingliang Holdings (including 2 which can't be ignored) .

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.