Hunan Aihua Group (SHSE:603989) sheds CN¥471m, company earnings and investor returns have been trending downwards for past three years

While it may not be enough for some shareholders, we think it is good to see the Hunan Aihua Group Co., Ltd (SHSE:603989) share price up 28% in a single quarter. But that doesn't change the fact that the returns over the last three years have been disappointing. In that time, the share price dropped 67%. So it is really good to see an improvement. The rise has some hopeful, but turnarounds are often precarious.

Since Hunan Aihua Group has shed CN¥471m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Hunan Aihua Group

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Hunan Aihua Group saw its EPS decline at a compound rate of 22% per year, over the last three years. This reduction in EPS is slower than the 31% annual reduction in the share price. So it seems the market was too confident about the business, in the past.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on Hunan Aihua Group's earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 6.2% in the last year, Hunan Aihua Group shareholders lost 35% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Hunan Aihua Group better, we need to consider many other factors. For example, we've discovered 2 warning signs for Hunan Aihua Group that you should be aware of before investing here.

We will like Hunan Aihua Group 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.