Despite the downward trend in earnings at Shanghai Xinpeng IndustryLtd (SZSE:002328) the stock pops 11%, bringing one-year gains to 38%

The simplest way to invest in stocks is to buy exchange traded funds. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Shanghai Xinpeng Industry Co.,Ltd. (SZSE:002328) share price is 34% higher than it was a year ago, much better than the market return of around 20% (not including dividends) in the same period. That's a solid performance by our standards! The longer term returns have not been as good, with the stock price only 14% higher than it was three years ago.

The past week has proven to be lucrative for Shanghai Xinpeng IndustryLtd investors, so let's see if fundamentals drove the company's one-year performance.

View our latest analysis for Shanghai Xinpeng IndustryLtd

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over the last twelve months, Shanghai Xinpeng IndustryLtd actually shrank its EPS by 51%.

This means it's unlikely the market is judging the company based on earnings growth. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.

We doubt the modest 0.8% dividend yield is doing much to support the share price. Unfortunately Shanghai Xinpeng IndustryLtd's fell 9.8% over twelve months. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Shanghai Xinpeng IndustryLtd, it has a TSR of 38% for the last 1 year. 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

It's nice to see that Shanghai Xinpeng IndustryLtd shareholders have received a total shareholder return of 38% over the last year. Of course, that includes the dividend. Notably the five-year annualised TSR loss of 0.6% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. It's always interesting to track share price performance over the longer term. But to understand Shanghai Xinpeng IndustryLtd better, we need to consider many other factors. For example, we've discovered 2 warning signs for Shanghai Xinpeng IndustryLtd that you should be aware of before investing here.

We will like Shanghai Xinpeng IndustryLtd 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.