Guizhou TyreLtd (SZSE:000589) sheds 5.2% this week, as yearly returns fall more in line with earnings growth

Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Guizhou Tyre Co.,Ltd. (SZSE:000589) share price is up 60% in the last 5 years, clearly besting the market return of around 13% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 23%, including dividends.

While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

View our latest analysis for Guizhou TyreLtd

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.

Over half a decade, Guizhou TyreLtd managed to grow its earnings per share at 37% a year. The EPS growth is more impressive than the yearly share price gain of 10% over the same period. So it seems the market isn't so enthusiastic about the stock these days. The reasonably low P/E ratio of 10.16 also suggests market apprehension.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Guizhou TyreLtd the TSR over the last 5 years was 75%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Guizhou TyreLtd shareholders have received a total shareholder return of 23% over one year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 12%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. For instance, we've identified 2 warning signs for Guizhou TyreLtd that you should be aware of.

We will like Guizhou TyreLtd 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.