The five-year decline in earnings might be taking its toll on Harbin Electric Corporation Jiamusi Electric MachineLtd (SZSE:000922) shareholders as stock falls 5.7% over the past week

Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. For example, long term Harbin Electric Corporation Jiamusi Electric Machine CO.,Ltd (SZSE:000922) shareholders have enjoyed a 86% share price rise over the last half decade, well in excess of the market return of around 17% (not including dividends).

In light of the stock dropping 5.7% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Harbin Electric Corporation Jiamusi Electric MachineLtd's earnings per share are down 0.03% per year, despite strong share price performance over five years.

By glancing at these numbers, we'd posit that the decline in earnings per share is not representative of how the business has changed over the years. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

We doubt the modest 1.8% dividend yield is attracting many buyers to the stock. On the other hand, Harbin Electric Corporation Jiamusi Electric MachineLtd's revenue is growing nicely, at a compound rate of 23% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Harbin Electric Corporation Jiamusi Electric MachineLtd, it has a TSR of 98% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Harbin Electric Corporation Jiamusi Electric MachineLtd had a tough year, with a total loss of 8.3% (including dividends), against a market gain of about 14%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 15% 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 Harbin Electric Corporation Jiamusi Electric MachineLtd better, we need to consider many other factors. For instance, we've identified 2 warning signs for Harbin Electric Corporation Jiamusi Electric MachineLtd that you should be aware of.

But note: Harbin Electric Corporation Jiamusi Electric MachineLtd 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.