Investors more bullish on China Wuyi (SZSE:000797) this week as stock ascends 9.7%, despite earnings trending downwards over past three years

By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at China Wuyi Co., Ltd. (SZSE:000797), which is up 31%, over three years, soundly beating the market decline of 17% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 5.9%, including dividends.

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

Check out our latest analysis for China Wuyi

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).

Over the last three years, China Wuyi failed to grow earnings per share, which fell 43% (annualized).

This means it's unlikely the market is judging the company based on earnings growth. Given this situation, it makes sense to look at other metrics too.

The modest 0.3% dividend yield is unlikely to be propping up the share price. It could be that the revenue growth of 8.3% per year is viewed as evidence that China Wuyi is growing. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of China Wuyi's earnings, revenue and cash flow.

A Different Perspective

China Wuyi provided a TSR of 5.9% over the last twelve months. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 0.7% per year over five year. This could indicate that the company is winning over new investors, as it pursues its 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. Case in point: We've spotted 2 warning signs for China Wuyi you should be aware of.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.