The three-year underlying earnings growth at China Huirong Financial Holdings (HKG:1290) is promising, but the shareholders are still in the red over that time

One of the frustrations of investing is when a stock goes down. But it can difficult to make money in a declining market. The China Huirong Financial Holdings Limited (HKG:1290) is down 30% over three years, but the total shareholder return is -25% once you include the dividend. That's better than the market which declined 33% over the last three years. And more recent buyers are having a tough time too, with a drop of 29% in the last year. Furthermore, it's down 23% in about a quarter. That's not much fun for holders.

If the past week is anything to go by, investor sentiment for China Huirong Financial Holdings isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

View our latest analysis for China Huirong Financial Holdings

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 the unfortunate three years of share price decline, China Huirong Financial Holdings actually saw its earnings per share (EPS) improve by 36% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

We note that, in three years, revenue has actually grown at a 36% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating China Huirong Financial Holdings further; while we may be missing something on this analysis, there might also be an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Take a more thorough look at China Huirong Financial Holdings' financial health with this free report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of China Huirong Financial Holdings, it has a TSR of -25% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

We regret to report that China Huirong Financial Holdings shareholders are down 27% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 19%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 2% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand China Huirong Financial Holdings better, we need to consider many other factors. Even so, be aware that China Huirong Financial Holdings is showing 2 warning signs in our investment analysis , you should know about...

We will like China Huirong Financial Holdings better if we see some big insider buys. While we wait, check out this free list of growing companies 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 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.