Suzhou Secote Precision ElectronicLTD's (SHSE:603283) five-year total shareholder returns outpace the underlying earnings growth

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. Long term Suzhou Secote Precision Electronic Co.,LTD (SHSE:603283) shareholders would be well aware of this, since the stock is up 206% in five years. On top of that, the share price is up 27% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 29% in 90 days).

In light of the stock dropping 6.5% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

See our latest analysis for Suzhou Secote Precision ElectronicLTD

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

During five years of share price growth, Suzhou Secote Precision ElectronicLTD achieved compound earnings per share (EPS) growth of 36% per year. This EPS growth is higher than the 25% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days.

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

We know that Suzhou Secote Precision ElectronicLTD has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Suzhou Secote Precision ElectronicLTD's financial health with this free report on its balance sheet.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Suzhou Secote Precision ElectronicLTD's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Suzhou Secote Precision ElectronicLTD shareholders, and that cash payout contributed to why its TSR of 227%, over the last 5 years, is better than the share price return.

A Different Perspective

Suzhou Secote Precision ElectronicLTD shareholders are down 2.5% for the year, but the market itself is up 8.3%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 27% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Suzhou Secote Precision ElectronicLTD better, we need to consider many other factors. For example, we've discovered 1 warning sign for Suzhou Secote Precision ElectronicLTD that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.