Pulling back 6.3% this week, Jiangsu Etern's SHSE:600105) five-year decline in earnings may be coming into investors focus

Jiangsu Etern Company Limited (SHSE:600105) shareholders might be concerned after seeing the share price drop 13% in the last month. But at least the stock is up over the last five years. However we are not very impressed because the share price is only up 16%, less than the market return of 26%.

In light of the stock dropping 6.3% 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.

View our latest analysis for Jiangsu Etern

While Jiangsu Etern made a small profit, in the last year, we think that the market is probably more focussed on the top line growth at the moment. As a general rule, we think this kind of company is more comparable to loss-making stocks, since the actual profit is so low. It would be hard to believe in a more profitable future without growing revenues.

In the last 5 years Jiangsu Etern saw its revenue grow at 6.8% per year. That's a fairly respectable growth rate. While the share price has beat the market, compounding at 3% yearly, over five years, there's certainly some potential that the market hasn't fully considered the growth track record. The key question is whether revenue growth will slow down, and if so, how quickly. Lack of earnings means you have to project further into the future justify the valuation on the basis of future free cash flow.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

It is of course excellent to see how Jiangsu Etern has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Jiangsu Etern stock, you should check out this FREE detailed report on its balance sheet.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Jiangsu Etern the TSR over the last 5 years was 19%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 14% in the last year, Jiangsu Etern shareholders lost 1.8% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 3%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Jiangsu Etern better, we need to consider many other factors. For instance, we've identified 5 warning signs for Jiangsu Etern (2 don't sit too well with us) that you should be aware of.

Of course Jiangsu Etern may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.