Anhui Yingliu Electromechanical's (SHSE:603308) five-year total shareholder returns outpace the underlying earnings growth

Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. To wit, the Anhui Yingliu Electromechanical share price has climbed 58% in five years, easily topping the market return of 22% (ignoring dividends).

Since the long term performance has been good but there's been a recent pullback of 6.7%, let's check if the fundamentals match the share price.

See our latest analysis for Anhui Yingliu Electromechanical

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 half a decade, Anhui Yingliu Electromechanical managed to grow its earnings per share at 18% a year. The EPS growth is more impressive than the yearly share price gain of 10% over the same period. So one could conclude that the broader market has become more cautious towards the stock.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Anhui Yingliu Electromechanical's key metrics by checking this interactive graph of Anhui Yingliu Electromechanical'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. We note that for Anhui Yingliu Electromechanical the TSR over the last 5 years was 64%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Anhui Yingliu Electromechanical shareholders are down 6.7% for the year (even including dividends), but the market itself is up 8.9%. 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 10% 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 Anhui Yingliu Electromechanical better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Anhui Yingliu Electromechanical (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

But note: Anhui Yingliu Electromechanical may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.