The five-year decline in earnings for Xiamen C&D SHSE:600153) isn't encouraging, but shareholders are still up 81% over that period

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term Xiamen C&D Inc. (SHSE:600153) shareholders have enjoyed a 27% share price rise over the last half decade, well in excess of the market return of around 6.6% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 5.5%, including dividends.

Although Xiamen C&D has shed CN¥1.2b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for Xiamen C&D

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Xiamen C&D's earnings per share are down 11% per year, despite strong share price performance over five years.

The strong decline in earnings per share suggests the market isn't using EPS to judge the company. Given that EPS is down, but the share price is up, it seems clear the market is focussed on other aspects of the business, at the moment.

We note that the dividend is higher than it was previously - always nice to see. Maybe dividend investors have helped support the share price. We'd posit that the revenue growth over the last five years, of 17% per year, would encourage people to invest.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

If you are thinking of buying or selling Xiamen C&D stock, you should check out this FREE detailed report on its balance sheet.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Xiamen C&D, it has a TSR of 81% 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

Xiamen C&D shareholders are up 5.5% for the year (even including dividends). But that return falls short of the market. 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 13% over five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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. To that end, you should learn about the 3 warning signs we've spotted with Xiamen C&D (including 1 which is significant) .

We will like Xiamen C&D 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.