Ningbo Orient Wires & CablesLtd's (SHSE:603606) five-year earnings growth trails the 39% YoY shareholder returns

Long term investing can be life changing when you buy and hold the truly great businesses. And we've seen some truly amazing gains over the years. To wit, the Ningbo Orient Wires & Cables Co.,Ltd. (SHSE:603606) share price has soared 390% over five years. And this is just one example of the epic gains achieved by some long term investors. It's also good to see the share price up 14% over the last quarter.

The past week has proven to be lucrative for Ningbo Orient Wires & CablesLtd investors, so let's see if fundamentals drove the company's five-year performance.

View our latest analysis for Ningbo Orient Wires & CablesLtd

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.

During five years of share price growth, Ningbo Orient Wires & CablesLtd achieved compound earnings per share (EPS) growth of 37% per year. This EPS growth is remarkably close to the 37% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Rather, the share price has approximately tracked EPS growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Ningbo Orient Wires & CablesLtd has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Ningbo Orient Wires & CablesLtd's TSR for the last 5 years was 410%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Ningbo Orient Wires & CablesLtd shareholders have received a total shareholder return of 9.9% over one year. Of course, that includes the dividend. Having said that, the five-year TSR of 39% a year, is even better. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 1 warning sign for Ningbo Orient Wires & CablesLtd that you should be aware of before investing here.

We will like Ningbo Orient Wires & CablesLtd 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.

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