While Huaxi Holdings Company Limited (HKG:1689) shareholders are probably generally happy, the stock hasn’t had particularly good run recently, with the share price falling 27% in the last quarter. But that doesn’t change the fact that the returns over the last five years have been very strong. In fact, the share price is 169% higher today. So while it’s never fun to see a share price fall, it’s important to look at a longer time horizon. Ultimately business performance will determine whether the stock price continues the positive long term trend.

View our latest analysis for Huaxi 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…’ By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Huaxi Holdings actually saw its EPS drop 11% per year. Essentially, it doesn’t seem likely that investors are focused on EPS. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.

We doubt the modest 1.9% dividend yield is attracting many buyers to the stock. It is not great to see that revenue has dropped by 5.1% per year over five years. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.

The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).

It’s probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Huaxi Holdings, it has a TSR of 221% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While it’s certainly disappointing to see that Huaxi Holdings shares lost 4.4% throughout the year, that wasn’t as bad as the market loss of 8.2%. Longer term investors wouldn’t be so upset, since they would have made 26%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. Is Huaxi Holdings cheap compared to other companies? These 3 valuation measures might help you decide.

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 HK exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.