Zhongshan Broad-Ocean Motor (SZSE:002249) pulls back 4.0% this week, but still delivers shareholders decent 10% CAGR over 5 years

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, long term Zhongshan Broad-Ocean Motor Co., Ltd. (SZSE:002249) shareholders have enjoyed a 42% share price rise over the last half decade, well in excess of the market return of around 17% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 20% in the last year, including dividends.

Since the long term performance has been good but there's been a recent pullback of 4.0%, let's check if the fundamentals match the share price.

View our latest analysis for Zhongshan Broad-Ocean Motor

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the five years of share price growth, Zhongshan Broad-Ocean Motor moved from a loss to profitability. That would generally be considered a positive, so we'd hope to see the share price to rise. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Zhongshan Broad-Ocean Motor share price is down 30% in the last three years. During the same period, EPS grew by 42% each year. It would appear there's a real mismatch between the increasing EPS and the share price, which has declined -11% a year for three years.

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

Dive deeper into Zhongshan Broad-Ocean Motor's key metrics by checking this interactive graph of Zhongshan Broad-Ocean Motor's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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, Zhongshan Broad-Ocean Motor's TSR for the last 5 years was 62%, 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 Zhongshan Broad-Ocean Motor shareholders have received a total shareholder return of 20% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 10%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Case in point: We've spotted 1 warning sign for Zhongshan Broad-Ocean Motor you should be aware of.

We will like Zhongshan Broad-Ocean Motor 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.

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

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.