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Imagine Owning Xinyuan Real Estate (NYSE:XIN) And Wondering If The 11% Share Price Slide Is Justified

Simply Wall St

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As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Xinyuan Real Estate Co., Ltd. (NYSE:XIN) shareholders, since the share price is down 11% in the last three years, falling well short of the market return of around 47%.

Check out our latest analysis for Xinyuan Real Estate

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 the unfortunate three years of share price decline, Xinyuan Real Estate actually saw its earnings per share (EPS) improve by 20% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed. It is a little bizarre to see the share price down, despite a strong improvement to earnings per share. Therefore, we should look at some other metrics to try to understand why the market is disappointed.

Given the healthiness of the dividend payments, we doubt that they've concerned the market. It's good to see that Xinyuan Real Estate has increased its revenue over the last three years. If the company can keep growing revenue, there may be an opportunity for investors. You might have to dig deeper to understand the recent share price weakness.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

NYSE:XIN Income Statement, June 14th 2019

Take a more thorough look at Xinyuan Real Estate's financial health with this free report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Xinyuan Real Estate the TSR over the last 3 years was 12%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Xinyuan Real Estate provided a TSR of 1.1% over the last twelve months. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 9.2% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. Before forming an opinion on Xinyuan Real Estate you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.

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 US 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.