Despite the downward trend in earnings at Zhejiang Zomax Transmission (SHSE:603767) the stock surges 11%, bringing five-year gains to 169%

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose 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%. For example, the Zhejiang Zomax Transmission Co., Ltd. (SHSE:603767) share price has soared 133% in the last half decade. Most would be very happy with that. It's also up 40% in about a month.

The past week has proven to be lucrative for Zhejiang Zomax Transmission investors, so let's see if fundamentals drove the company's five-year performance.

See our latest analysis for Zhejiang Zomax Transmission

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.

During five years of share price growth, Zhejiang Zomax Transmission actually saw its EPS drop 2.6% per year.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

The modest 1.2% dividend yield is unlikely to be propping up the share price. We are not particularly impressed by the annual compound revenue growth of 2.2% over five years. So why is the share price up? It's not immediately obvious to us, but a closer look at the company's progress over time might yield answers.

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

This free interactive report on Zhejiang Zomax Transmission's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. In the case of Zhejiang Zomax Transmission, it has a TSR of 169% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Zhejiang Zomax Transmission shareholders are up 3.3% for the year (even including dividends). Unfortunately this falls short of the market return. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 22% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. It's always interesting to track share price performance over the longer term. But to understand Zhejiang Zomax Transmission better, we need to consider many other factors. Take risks, for example - Zhejiang Zomax Transmission has 2 warning signs we think 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.