Huadian Liaoning Energy Development Co.,Ltd (SHSE:600396) shareholders might be concerned after seeing the share price drop 16% in the last week. On the other hand the returns over the last half decade have not been bad. It's good to see the share price is up 30% in that time, better than its market return of 26%.

In light of the stock dropping 16% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the five years of share price growth, Huadian Liaoning Energy DevelopmentLtd moved from a loss to profitability. That's generally thought to be a genuine positive, so we would expect to see an increasing share price. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Huadian Liaoning Energy DevelopmentLtd share price is up 16% in the last three years. During the same period, EPS grew by 131% each year. This EPS growth is higher than the 5% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 2.32.

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

Dive deeper into Huadian Liaoning Energy DevelopmentLtd's key metrics by checking this interactive graph of Huadian Liaoning Energy DevelopmentLtd's earnings, revenue and cash flow.

A Different Perspective

While it's never nice to take a loss, Huadian Liaoning Energy DevelopmentLtd shareholders can take comfort that their trailing twelve month loss of 15% wasn't as bad as the market loss of around 25%. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. It's always interesting to track share price performance over the longer term. But to understand Huadian Liaoning Energy DevelopmentLtd better, we need to consider many other factors. For instance, we've identified 2 warning signs for Huadian Liaoning Energy DevelopmentLtd (1 is concerning) that you should be aware of.

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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese 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.