China Automotive Engineering Research Institute's (SHSE:601965) five-year earnings growth trails the 21% YoY shareholder returns

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. One great example is China Automotive Engineering Research Institute Co., Ltd. (SHSE:601965) which saw its share price drive 134% higher over five years. It's also up 11% in about a month.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

See our latest analysis for China Automotive Engineering Research Institute

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

During five years of share price growth, China Automotive Engineering Research Institute achieved compound earnings per share (EPS) growth of 15% per year. So the EPS growth rate is rather close to the annualized share price gain of 19% per year. This indicates that investor sentiment towards the company has not changed a great deal. In fact, the share price seems to largely reflect the EPS growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that China Automotive Engineering Research Institute has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

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 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. In the case of China Automotive Engineering Research Institute, it has a TSR of 158% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

China Automotive Engineering Research Institute shareholders are down 14% over twelve months (even including dividends), which isn't far from the market return of -14%. Longer term investors wouldn't be so upset, since they would have made 21%, each year, over five years. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. It's always interesting to track share price performance over the longer term. But to understand China Automotive Engineering Research Institute better, we need to consider many other factors. Take risks, for example - China Automotive Engineering Research Institute has 1 warning sign we think you should be aware of.

We will like China Automotive Engineering Research Institute better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.