Zhong An Group (HKG:672) earnings and shareholder returns have been trending downwards for the last three years, but the stock rallies 18% this past week

This week we saw the Zhong An Group Limited (HKG:672) share price climb by 18%. But only the myopic could ignore the astounding decline over three years. Indeed, the share price is down a whopping 71% in the last three years. So it's about time shareholders saw some gains. The thing to think about is whether the business has really turned around.

The recent uptick of 18% could be a positive sign of things to come, so let's take a look at historical fundamentals.

See our latest analysis for Zhong An Group

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

Zhong An Group saw its EPS decline at a compound rate of 26% per year, over the last three years. This reduction in EPS is slower than the 34% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 2.45.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It might be well worthwhile taking a look at our free report on Zhong An Group's earnings, revenue and cash flow.

A Different Perspective

While the broader market lost about 7.6% in the twelve months, Zhong An Group shareholders did even worse, losing 47%. 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 10% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Case in point: We've spotted 3 warning signs for Zhong An Group you should be aware of, and 2 of them are concerning.

If you are like me, then you will not want to miss this free list of growing companies that insiders are 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.