Ningbo Orient Wires & CablesLtd's (SHSE:603606) five-year earnings growth trails the enviable shareholder returns

We think all investors should try to buy and hold high quality multi-year winners. And highest quality companies can see their share prices grow by huge amounts. Just think about the savvy investors who held Ningbo Orient Wires & Cables Co.,Ltd. (SHSE:603606) shares for the last five years, while they gained 442%. If that doesn't get you thinking about long term investing, we don't know what will. It's also good to see the share price up 20% over the last quarter. But this could be related to the strong market, which is up 24% in the last three months.

Since the stock has added CN¥2.3b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Ningbo Orient Wires & CablesLtd

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

During five years of share price growth, Ningbo Orient Wires & CablesLtd achieved compound earnings per share (EPS) growth of 25% per year. This EPS growth is slower than the share price growth of 40% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

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?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Ningbo Orient Wires & CablesLtd, it has a TSR of 465% 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 nice to see that Ningbo Orient Wires & CablesLtd shareholders have received a total shareholder return of 42% over the last year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 41% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Ningbo Orient Wires & CablesLtd better, we need to consider many other factors. Even so, be aware that Ningbo Orient Wires & CablesLtd is showing 1 warning sign in our investment analysis , you should know about...

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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.