Despite the downward trend in earnings at Jiangxi Xinyu Guoke Technology (SZSE:300722) the stock rallies 15%, bringing five-year gains to 115%

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 on the bright side, you can make far more than 100% on a really good stock. Long term Jiangxi Xinyu Guoke Technology Co., Ltd (SZSE:300722) shareholders would be well aware of this, since the stock is up 108% in five years. In more good news, the share price has risen 16% in thirty days.

Since the stock has added CN¥778m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Jiangxi Xinyu Guoke Technology

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.

Jiangxi Xinyu Guoke Technology's earnings per share are down 0.8% per year, despite strong share price performance over five years.

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. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The modest 0.6% dividend yield is unlikely to be propping up the share price. In contrast revenue growth of 14% per year is probably viewed as evidence that Jiangxi Xinyu Guoke Technology is growing, a real positive. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

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

If you are thinking of buying or selling Jiangxi Xinyu Guoke Technology stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Jiangxi Xinyu Guoke Technology the TSR over the last 5 years was 115%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While it's certainly disappointing to see that Jiangxi Xinyu Guoke Technology shares lost 0.7% throughout the year, that wasn't as bad as the market loss of 15%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 17% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand Jiangxi Xinyu Guoke Technology better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Jiangxi Xinyu Guoke Technology you should be aware of.

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.