Pulling back 6.6% this week, Fujian Kuncai Material Technology's SHSE:603826) five-year decline in earnings may be coming into investors focus

Simply Wall St · 08/30 22:39

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on a lighter note, a good company can see its share price rise well over 100%. For example, the Fujian Kuncai Material Technology Co., Ltd. (SHSE:603826) share price has soared 210% in the last half decade. Most would be very happy with that. It's also good to see the share price up 13% over the last quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.

In light of the stock dropping 6.6% 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.

See our latest analysis for Fujian Kuncai Material Technology

There is no denying that markets are sometimes efficient, but prices do not always reflect 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.

Fujian Kuncai Material Technology's earnings per share are down 12% per year, despite strong share price performance over five years.

This means it's unlikely the market is judging the company based on earnings growth. 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.

The modest 0.2% dividend yield is unlikely to be propping up the share price. On the other hand, Fujian Kuncai Material Technology's revenue is growing nicely, at a compound rate of 7.2% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
SHSE:603826 Earnings and Revenue Growth August 30th 2024

We know that Fujian Kuncai Material Technology has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Fujian Kuncai Material Technology in this interactive graph of future profit estimates.

A Different Perspective

We regret to report that Fujian Kuncai Material Technology shareholders are down 13% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 11%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 25% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Case in point: We've spotted 2 warning signs for Fujian Kuncai Material Technology you should be aware of.

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 Chinese exchanges.