Ningbo ZhongDa Leader Intelligent Transmission's (SZSE:002896) five-year total shareholder returns outpace the underlying earnings growth

The Ningbo ZhongDa Leader Intelligent Transmission Co., Ltd. (SZSE:002896) share price has had a bad week, falling 15%. But that doesn't change the fact that the returns over the last half decade have been spectacular. Indeed, the share price is up a whopping 599% in that time. Arguably, the recent fall is to be expected after such a strong rise. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. We love happy stories like this one. The company should be really proud of that performance!

While the stock has fallen 15% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

See our latest analysis for Ningbo ZhongDa Leader Intelligent Transmission

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. 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.

Over half a decade, Ningbo ZhongDa Leader Intelligent Transmission managed to grow its earnings per share at 6.3% a year. This EPS growth is lower than the 48% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 206.27.

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 Ningbo ZhongDa Leader Intelligent Transmission's earnings, revenue and cash flow 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. 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 Ningbo ZhongDa Leader Intelligent Transmission, it has a TSR of 629% for the last 5 years. 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 Ningbo ZhongDa Leader Intelligent Transmission shareholders have received a total shareholder return of 195% over the last year. Of course, that includes the dividend. That's better than the annualised return of 49% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Ningbo ZhongDa Leader Intelligent Transmission has 2 warning signs (and 1 which can't be ignored) we think you should know about.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.