As ESR Group (HKG:1821) increases 4.6% this past week, investors may now be noticing the company's three-year earnings growth

Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term ESR Group Limited (HKG:1821) shareholders have had that experience, with the share price dropping 46% in three years, versus a market decline of about 12%. And over the last year the share price fell 41%, so we doubt many shareholders are delighted. More recently, the share price has dropped a further 10% in a month. We do note, however, that the broader market is down 4.3% in that period, and this may have weighed on the share price.

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 ESR Group

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the unfortunate three years of share price decline, ESR Group actually saw its earnings per share (EPS) improve by 1.2% 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 looks to us like the market was probably too optimistic around growth three years ago. But it's possible a look at other metrics will be enlightening.

We note that, in three years, revenue has actually grown at a 30% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating ESR Group further; while we may be missing something on this analysis, there might also be an opportunity.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So it makes a lot of sense to check out what analysts think ESR Group will earn in the future (free profit forecasts).

A Different Perspective

ESR Group shareholders are down 40% for the year (even including dividends), falling short of the market return. Meanwhile, the broader market slid about 3.0%, likely weighing on the stock. The three-year loss of 13% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that ESR Group is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.