While shareholders of China Xinhua Education Group (HKG:2779) are in the red over the last five years, underlying earnings have actually grown

While it may not be enough for some shareholders, we think it is good to see the China Xinhua Education Group Limited (HKG:2779) share price up 29% in a single quarter. But that can't change the reality that over the longer term (five years), the returns have been really quite dismal. In fact, the share price has declined rather badly, down some 71% in that time. So we're hesitant to put much weight behind the short term increase. But it could be that the fall was overdone.

While the last five years has been tough for China Xinhua Education Group shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

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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 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 unfortunate half decade during which the share price slipped, China Xinhua Education Group actually saw its earnings per share (EPS) improve by 6.6% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Alternatively, growth expectations may have been unreasonable in the past.

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.

In contrast to the share price, revenue has actually increased by 6.9% a year in the five year period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.

You can see below how earnings and revenue have changed over time (discover 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. This free interactive report on China Xinhua Education Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Dividend Lost

The value of past dividends are accounted for in the total shareholder return (TSR), but not in the share price return mentioned above. By accounting for the value of dividends paid, the TSR can be seen as a more complete measure of the value a company brings to its shareholders. China Xinhua Education Group's TSR over the last 5 years is -61%; better than its share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.

A Different Perspective

While the broader market gained around 30% in the last year, China Xinhua Education Group shareholders lost 7.3%. 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, longer term shareholders are suffering worse, given the loss of 10% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. You could get a better understanding of China Xinhua Education Group's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong 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.