JiangSu Zhenjiang New Energy Equipment's (SHSE:603507) three-year earnings growth trails the 19% YoY shareholder returns

By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at JiangSu Zhenjiang New Energy Equipment Co., Ltd. (SHSE:603507), which is up 67%, over three years, soundly beating the market decline of 26% (not including dividends).

Since it's been a strong week for JiangSu Zhenjiang New Energy Equipment shareholders, let's have a look at trend of the longer term fundamentals.

Check out our latest analysis for JiangSu Zhenjiang New Energy Equipment

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

JiangSu Zhenjiang New Energy Equipment was able to grow its EPS at 25% per year over three years, sending the share price higher. The average annual share price increase of 19% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock.

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, JiangSu Zhenjiang New Energy Equipment's TSR for the last 3 years was 69%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

While it's certainly disappointing to see that JiangSu Zhenjiang New Energy Equipment shares lost 8.0% throughout the year, that wasn't as bad as the market loss of 14%. Longer term investors wouldn't be so upset, since they would have made 11%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for JiangSu Zhenjiang New Energy Equipment you should know about.

But note: JiangSu Zhenjiang New Energy Equipment 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com