Recent 6.2% pullback isn't enough to hurt long-term Chongqing Changan Automobile (SZSE:000625) shareholders, they're still up 178% over 5 years

Chongqing Changan Automobile Company Limited (SZSE:000625) shareholders have seen the share price descend 23% over the month. But that doesn't change the fact that shareholders have received really good returns over the last five years. We think most investors would be happy with the 161% return, over that period. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Only time will tell if there is still too much optimism currently reflected in the share price.

While the stock has fallen 6.2% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

See our latest analysis for Chongqing Changan Automobile

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 the five years of share price growth, Chongqing Changan Automobile moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. In fact, the Chongqing Changan Automobile stock price is 26% lower in the last three years. During the same period, EPS grew by 13% each year. So there seems to be a mismatch between the positive EPS growth and the change in the share price, which is down -10% per year.

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

Dive deeper into Chongqing Changan Automobile's key metrics by checking this interactive graph of Chongqing Changan Automobile's earnings, revenue and cash flow.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Chongqing Changan Automobile, it has a TSR of 178% 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

While it's never nice to take a loss, Chongqing Changan Automobile shareholders can take comfort that , including dividends,their trailing twelve month loss of 12% wasn't as bad as the market loss of around 19%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 23% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 3 warning signs for Chongqing Changan Automobile that you should be aware of.

Of course Chongqing Changan Automobile may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.