Shanghai Daimay Automotive Interior's (SHSE:603730) investors will be pleased with their stellar 100% return over the last five years

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Shanghai Daimay Automotive Interior Co., Ltd (SHSE:603730) shareholders have enjoyed a 77% share price rise over the last half decade, well in excess of the market return of around 15% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 3.8% in the last year, including dividends.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

View our latest analysis for Shanghai Daimay Automotive Interior

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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, Shanghai Daimay Automotive Interior achieved compound earnings per share (EPS) growth of 4.6% per year. This EPS growth is slower than the share price growth of 12% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Shanghai Daimay Automotive Interior has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Shanghai Daimay Automotive Interior's TSR for the last 5 years was 100%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's nice to see that Shanghai Daimay Automotive Interior shareholders have received a total shareholder return of 3.8% over the last year. That's including the dividend. Having said that, the five-year TSR of 15% a year, is even better. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It's always interesting to track share price performance over the longer term. But to understand Shanghai Daimay Automotive Interior better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Shanghai Daimay Automotive Interior 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.

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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.