Eaglerise Electric & Electronic (China)'s (SZSE:002922) five-year total shareholder returns outpace the underlying earnings growth

The Eaglerise Electric & Electronic (China) Co., Ltd (SZSE:002922) share price has had a bad week, falling 11%. But that doesn't change the fact that the returns over the last five years have been very strong. In fact, the share price is 148% higher today. To some, the recent pullback wouldn't be surprising after such a fast rise. Of course, that doesn't necessarily mean it's cheap now.

While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

Check out our latest analysis for Eaglerise Electric & Electronic (China)

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Eaglerise Electric & Electronic (China) achieved compound earnings per share (EPS) growth of 27% per year. The EPS growth is more impressive than the yearly share price gain of 20% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Eaglerise Electric & Electronic (China) has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. We note that for Eaglerise Electric & Electronic (China) the TSR over the last 5 years was 168%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Eaglerise Electric & Electronic (China) shareholders have received a total shareholder return of 64% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 22%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Take risks, for example - Eaglerise Electric & Electronic (China) has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

But note: Eaglerise Electric & Electronic (China) 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.

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