Harbin Electric Corporation Jiamusi Electric MachineLtd (SZSE:000922) stock performs better than its underlying earnings growth over last five years

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. To wit, the Harbin Electric Corporation Jiamusi Electric MachineLtd share price has climbed 81% in five years, easily topping the market return of 12% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 22%, including dividends.

The past week has proven to be lucrative for Harbin Electric Corporation Jiamusi Electric MachineLtd investors, so let's see if fundamentals drove the company's five-year performance.

Check out our latest analysis for Harbin Electric Corporation Jiamusi Electric MachineLtd

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, Harbin Electric Corporation Jiamusi Electric MachineLtd achieved compound earnings per share (EPS) growth of 2.0% per year. This EPS growth is slower than the share price growth of 13% 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.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

This free interactive report on Harbin Electric Corporation Jiamusi Electric MachineLtd's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. As it happens, Harbin Electric Corporation Jiamusi Electric MachineLtd's TSR for the last 5 years was 93%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Harbin Electric Corporation Jiamusi Electric MachineLtd has rewarded shareholders with a total shareholder return of 22% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 14% 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 Harbin Electric Corporation Jiamusi Electric MachineLtd better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Harbin Electric Corporation Jiamusi Electric MachineLtd you should be aware of.

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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.