New World Department Store China (HKG:825) earnings and shareholder returns have been trending downwards for the last five years, but the stock hikes 12% this past week

While not a mind-blowing move, it is good to see that the New World Department Store China Limited (HKG:825) share price has gained 24% in the last three months. But will that heal all the wounds inflicted over 5 years of declines? Unlikely. Like a ship taking on water, the share price has sunk 74% in that time. The recent bounce might mean the long decline is over, but we are not confident. The important question is if the business itself justifies a higher share price in the long term.

On a more encouraging note the company has added HK$59m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

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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.

New World Department Store China became profitable within the last five years. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics might give us a better handle on how its value is changing over time.

It could be that the revenue decline of 9.9% per year is viewed as evidence that New World Department Store China is shrinking. This has probably encouraged some shareholders to sell down the stock.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

New World Department Store China shareholders are up 38% for the year. But that was short of the market average. But at least that's still a gain! Over five years the TSR has been a reduction of 12% per year, over five years. It could well be that the business is stabilizing. 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. Even so, be aware that New World Department Store China is showing 2 warning signs in our investment analysis , you should know about...

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.