Investors who have held Guangxi Nanning WaterworksLtd (SHSE:601368) over the last five years have watched its earnings decline along with their investment

While it may not be enough for some shareholders, we think it is good to see the Guangxi Nanning Waterworks Co.,Ltd. (SHSE:601368) share price up 16% in a single quarter. But if you look at the last five years the returns have not been good. You would have done a lot better buying an index fund, since the stock has dropped 17% in that half decade.

Although the past week has been more reassuring for shareholders, they're still in the red over the last five years, so let's see if the underlying business has been responsible for the decline.

View our latest analysis for Guangxi Nanning WaterworksLtd

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).

During the five years over which the share price declined, Guangxi Nanning WaterworksLtd's earnings per share (EPS) dropped by 21% each year. The share price decline of 4% per year isn't as bad as the EPS decline. So investors might expect EPS to bounce back -- or they may have previously foreseen the EPS decline.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Guangxi Nanning WaterworksLtd's TSR for the last 5 years was -11%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market lost about 6.0% in the twelve months, Guangxi Nanning WaterworksLtd shareholders did even worse, losing 8.0% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 2% 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 Guangxi Nanning WaterworksLtd better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Guangxi Nanning WaterworksLtd (of which 2 are potentially serious!) you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.