The five-year loss for Quanzhou Huixin Micro-credit (HKG:1577) shareholders likely driven by its shrinking earnings

The main aim of stock picking is to find the market-beating stocks. But the main game is to find enough winners to more than offset the losers So we wouldn't blame long term Quanzhou Huixin Micro-credit Co., Ltd. (HKG:1577) shareholders for doubting their decision to hold, with the stock down 52% over a half decade. Furthermore, it's down 13% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 6.5% decline in the broader market, throughout the period.

While the last five years has been tough for Quanzhou Huixin Micro-credit 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.

View our latest analysis for Quanzhou Huixin Micro-credit

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the five years over which the share price declined, Quanzhou Huixin Micro-credit's earnings per share (EPS) dropped by 7.8% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 14% per year, over the period. This implies that the market was previously too optimistic about the stock. The less favorable sentiment is reflected in its current P/E ratio of 6.77.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Quanzhou Huixin Micro-credit's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Quanzhou Huixin Micro-credit's TSR for the last 5 years was -33%, 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

It's good to see that Quanzhou Huixin Micro-credit has rewarded shareholders with a total shareholder return of 13% in the last twelve months. Of course, that includes the dividend. Notably the five-year annualised TSR loss of 6% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It's always interesting to track share price performance over the longer term. But to understand Quanzhou Huixin Micro-credit better, we need to consider many other factors. For instance, we've identified 3 warning signs for Quanzhou Huixin Micro-credit (1 is significant) that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.