Despite the downward trend in earnings at Streamax Technology (SZSE:002970) the stock lifts 5.3%, bringing five-year gains to 62%

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Streamax Technology Co., Ltd. (SZSE:002970) shareholders have enjoyed a 54% share price rise over the last half decade, well in excess of the market return of around 16% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 46%, including dividends.

Since the stock has added CN¥401m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Streamax Technology

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Streamax Technology's earnings per share are down 2.1% per year, despite strong share price performance over five years.

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. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the modest 0.4% dividend yield is attracting many buyers to the stock. In contrast revenue growth of 4.4% per year is probably viewed as evidence that Streamax Technology is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.

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

We know that Streamax Technology has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Streamax Technology will earn in the future (free profit forecasts).

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Streamax Technology, it has a TSR of 62% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Streamax Technology has rewarded shareholders with a total shareholder return of 46% in the last twelve months. That's including the dividend. That's better than the annualised return of 10% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Before deciding if you like the current share price, check how Streamax Technology scores on these 3 valuation metrics.

We will like Streamax Technology 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.