Zhongnongfa Seed Industry Group's (SHSE:600313) five-year total shareholder returns outpace the underlying earnings growth

It hasn't been the best quarter for Zhongnongfa Seed Industry Group Co., Ltd. (SHSE:600313) shareholders, since the share price has fallen 20% in that time. Looking further back, the stock has generated good profits over five years. After all, the share price is up a market-beating 42% in that time. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 36% decline over the last twelve months.

In light of the stock dropping 6.6% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

Check out our latest analysis for Zhongnongfa Seed Industry Group

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 five years of share price growth, Zhongnongfa Seed Industry Group achieved compound earnings per share (EPS) growth of 31% per year. This EPS growth is higher than the 7% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

This free interactive report on Zhongnongfa Seed Industry Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market lost about 14% in the twelve months, Zhongnongfa Seed Industry Group shareholders did even worse, losing 36%. 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. Longer term investors wouldn't be so upset, since they would have made 7%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 example, we've discovered 2 warning signs for Zhongnongfa Seed Industry Group that you should be aware of before investing here.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.

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