Optimism for Zhongyeda Electric (SZSE:002441) has grown this past week, despite one-year decline in earnings

The simplest way to invest in stocks is to buy exchange traded funds. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Zhongyeda Electric Co., Ltd. (SZSE:002441) share price is up 32% in the last 1 year, clearly besting the market return of around 19% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Having said that, the longer term returns aren't so impressive, with stock gaining just 3.8% in three years.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

Check out our latest analysis for Zhongyeda Electric

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

Over the last twelve months, Zhongyeda Electric actually shrank its EPS by 43%.

Given the share price gain, we doubt the market is measuring progress with EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.

Unfortunately Zhongyeda Electric's fell 5.2% over twelve months. So the fundamental metrics don't provide an obvious explanation for the share price gain.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Zhongyeda Electric, it has a TSR of 38% for the last 1 year. 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 Zhongyeda Electric shareholders have received a total shareholder return of 38% over the last year. That's including the dividend. That's better than the annualised return of 4% over half a decade, implying that the company is doing better recently. 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 Zhongyeda Electric better, we need to consider many other factors. For example, we've discovered 3 warning signs for Zhongyeda Electric (1 is significant!) that you should be aware of before investing here.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are 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.