Positive earnings growth hasn't been enough to get China Ruyi Holdings (HKG:136) shareholders a favorable return over the last three years

As an investor, mistakes are inevitable. But you have a problem if you face massive losses more than once in a while. So consider, for a moment, the misfortune of China Ruyi Holdings Limited (HKG:136) investors who have held the stock for three years as it declined a whopping 87%. That would be a disturbing experience. And more recent buyers are having a tough time too, with a drop of 21% in the last year. The falls have accelerated recently, with the share price down 12% in the last three months. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

While the stock has risen 4.6% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

View our latest analysis for China Ruyi Holdings

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).

Although the share price is down over three years, China Ruyi Holdings actually managed to grow EPS by 82% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. 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.

Revenue is actually up 33% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching China Ruyi Holdings more closely, as sometimes stocks fall unfairly. This could present 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).

We know that China Ruyi Holdings has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on China Ruyi Holdings' balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market lost about 8.1% in the twelve months, China Ruyi Holdings shareholders did even worse, losing 21%. 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 6% over the last half decade. 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. 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. For example, we've discovered 3 warning signs for China Ruyi Holdings that you should be aware of before investing here.

We will like China Ruyi 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.