The five-year shareholder returns and company earnings persist lower as Xinyi Energy Holdings (HKG:3868) stock falls a further 4.3% in past week

Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding Xinyi Energy Holdings Limited (HKG:3868) during the five years that saw its share price drop a whopping 80%. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days.

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

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 five years over which the share price declined, Xinyi Energy Holdings' earnings per share (EPS) dropped by 4.7% each year. This reduction in EPS is less than the 27% annual reduction in the share price. This implies that the market was previously too optimistic about the stock. The low P/E ratio of 9.69 further reflects this reticence.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Xinyi Energy Holdings has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Xinyi Energy Holdings' TSR for the last 5 years was -74%, 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

We're pleased to report that Xinyi Energy Holdings shareholders have received a total shareholder return of 48% over one year. That's including the dividend. Notably the five-year annualised TSR loss of 12% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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 2 warning signs for Xinyi Energy Holdings (1 is potentially serious!) that you should be aware of before investing here.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.