The five-year underlying earnings growth at China Merchants Property Operation & Service (SZSE:001914) is promising, but the shareholders are still in the red over that time

While not a mind-blowing move, it is good to see that the China Merchants Property Operation & Service Co., Ltd. (SZSE:001914) share price has gained 27% in the last three months. But that doesn't change the fact that the returns over the last five years have been less than pleasing. You would have done a lot better buying an index fund, since the stock has dropped 45% in that half decade.

With the stock having lost 4.5% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

See our latest analysis for China Merchants Property Operation & Service

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

While the share price declined over five years, China Merchants Property Operation & Service actually managed to increase EPS by an average of 24% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.

Because of the sharp contrast between the EPS growth rate and the share price growth, we're inclined to look to other metrics to understand the changing market sentiment around the stock.

We don't think that the 1.6% is big factor in the share price, since it's quite small, as dividends go. Revenue is actually up 20% over the time period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.

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

China Merchants Property Operation & Service is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling China Merchants Property Operation & Service stock, you should check out this free report showing analyst consensus estimates for future profits.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, China Merchants Property Operation & Service's TSR for the last 5 years was -42%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Investors in China Merchants Property Operation & Service had a tough year, with a total loss of 15% (including dividends), against a market gain of about 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 7% over the last half decade. 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. 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. Take risks, for example - China Merchants Property Operation & Service has 1 warning sign we think you should be aware of.

We will like China Merchants Property Operation & Service better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.