Hangzhou Weiguang ElectronicLtd (SZSE:002801) investors are up 8.9% in the past week, but earnings have declined over the last five years

Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Hangzhou Weiguang Electronic Co.,Ltd. (SZSE:002801) share price is up 41% in the last 5 years, clearly besting the market return of around 17% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 15% in the last year, including dividends.

The past week has proven to be lucrative for Hangzhou Weiguang ElectronicLtd investors, so let's see if fundamentals drove the company's five-year performance.

Check out our latest analysis for Hangzhou Weiguang ElectronicLtd

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Hangzhou Weiguang ElectronicLtd actually saw its EPS drop 0.7% per year.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

The modest 1.2% dividend yield is unlikely to be propping up the share price. In contrast revenue growth of 12% per year is probably viewed as evidence that Hangzhou Weiguang ElectronicLtd is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.

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

This free interactive report on Hangzhou Weiguang ElectronicLtd's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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, Hangzhou Weiguang ElectronicLtd's TSR for the last 5 years was 53%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Hangzhou Weiguang ElectronicLtd has rewarded shareholders with a total shareholder return of 15% 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 9% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Hangzhou Weiguang ElectronicLtd better, we need to consider many other factors. Even so, be aware that Hangzhou Weiguang ElectronicLtd is showing 3 warning signs in our investment analysis , you should know about...

Of course Hangzhou Weiguang ElectronicLtd may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.