1.1% earnings growth over 5 years has not materialized into gains for Cathay Pacific Airways (HKG:293) shareholders over that period

Ideally, your overall portfolio should beat the market average. But even the best stock picker will only win with some selections. So we wouldn't blame long term Cathay Pacific Airways Limited (HKG:293) shareholders for doubting their decision to hold, with the stock down 26% over a half decade.

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

Check out our latest analysis for Cathay Pacific Airways

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 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 five years of share price growth, Cathay Pacific Airways moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.

We note that the dividend has remained healthy, so that wouldn't really explain the share price drop. While it's not completely obvious why the share price is down, a closer look at the company's history might help explain it.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Cathay Pacific Airways is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Cathay Pacific Airways the TSR over the last 5 years was -9.6%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Cathay Pacific Airways had a tough year, with a total loss of 6.9% (including dividends), against a market gain of about 1.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.9% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand Cathay Pacific Airways better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Cathay Pacific Airways you should be aware of, and 1 of them is potentially serious.

But note: Cathay Pacific Airways may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.