Gaona Aero Material's (SZSE:300034) five-year earnings growth trails the decent shareholder returns

Stock pickers are generally looking for stocks that will outperform the broader market. And in our experience, buying the right stocks can give your wealth a significant boost. To wit, the Gaona Aero Material share price has climbed 68% in five years, easily topping the market return of 20% (ignoring dividends).

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

Check out our latest analysis for Gaona Aero Material

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.

During five years of share price growth, Gaona Aero Material achieved compound earnings per share (EPS) growth of 12% per year. This EPS growth is reasonably close to the 11% average annual increase in the share price. This indicates that investor sentiment towards the company has not changed a great deal. In fact, the share price seems to largely reflect the EPS growth.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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 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 Gaona Aero Material the TSR over the last 5 years was 73%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Gaona Aero Material shareholders are down 14% for the year (even including dividends), but the market itself is up 9.8%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 12% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Gaona Aero Material better, we need to consider many other factors. For instance, we've identified 1 warning sign for Gaona Aero Material that you should be aware of.

Of course Gaona Aero Material 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.