The total return for Ningbo ZhongDa Leader Intelligent Transmission (SZSE:002896) investors has risen faster than earnings growth over the last five years

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But when you pick a company that is really flourishing, you can make more than 100%. For instance, the price of Ningbo ZhongDa Leader Intelligent Transmission Co., Ltd. (SZSE:002896) stock is up an impressive 118% over the last five years. In more good news, the share price has risen 13% in thirty days. But this could be related to good market conditions -- stocks in its market are up 21% in the last month.

In light of the stock dropping 9.7% 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.

See our latest analysis for Ningbo ZhongDa Leader Intelligent Transmission

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. 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 5.4% a year. This EPS growth is lower than the 17% 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 favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 52.19.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Ningbo ZhongDa Leader Intelligent Transmission has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Ningbo ZhongDa Leader Intelligent Transmission will grow revenue in the future.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Ningbo ZhongDa Leader Intelligent Transmission the TSR over the last 5 years was 127%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

We regret to report that Ningbo ZhongDa Leader Intelligent Transmission shareholders are down 23% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 0.6%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 18%, each year, over five years. 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 Ningbo ZhongDa Leader Intelligent Transmission better, we need to consider many other factors. Even so, be aware that Ningbo ZhongDa Leader Intelligent Transmission is showing 1 warning sign in our investment analysis , you should know about...

But note: Ningbo ZhongDa Leader Intelligent Transmission 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.