The five-year decline in earnings for Leshan Electric PowerLtd SHSE:600644) isn't encouraging, but shareholders are still up 18% over that period

It's been a soft week for Leshan Electric Power Co.,Ltd (SHSE:600644) shares, which are down 14%. But the silver lining is the stock is up over five years. However we are not very impressed because the share price is only up 18%, less than the market return of 26%.

While the stock has fallen 14% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

See our latest analysis for Leshan Electric PowerLtd

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. 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.

During five years of share price growth, Leshan Electric PowerLtd actually saw its EPS drop 24% per year.

Since the EPS are down strongly, it seems highly unlikely market participants are looking at EPS to value the company. Given that EPS is down, but the share price is up, it seems clear the market is focussed on other aspects of the business, at the moment.

In contrast revenue growth of 7.9% per year is probably viewed as evidence that Leshan Electric PowerLtd is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.

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

Take a more thorough look at Leshan Electric PowerLtd's financial health with this free report on its balance sheet.

A Different Perspective

Although it hurts that Leshan Electric PowerLtd returned a loss of 8.8% in the last twelve months, the broader market was actually worse, returning a loss of 11%. Longer term investors wouldn't be so upset, since they would have made 3%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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. Even so, be aware that Leshan Electric PowerLtd is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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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.