Those who invested in Zhejiang Weiming Environment Protection (SHSE:603568) five years ago are up 36%

When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, the Zhejiang Weiming Environment Protection Co., Ltd. (SHSE:603568) share price is up 30% in the last 5 years, clearly besting the market return of around 6.0% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 19% in the last year, including dividends.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

Check out our latest analysis for Zhejiang Weiming Environment Protection

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Zhejiang Weiming Environment Protection achieved compound earnings per share (EPS) growth of 22% per year. This EPS growth is higher than the 5% average annual increase in the share price. 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 Zhejiang Weiming Environment Protection has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Zhejiang Weiming Environment Protection will grow revenue in the future.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Zhejiang Weiming Environment Protection, it has a TSR of 36% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Zhejiang Weiming Environment Protection shareholders have received a total shareholder return of 19% over the last year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 6% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. For instance, we've identified 1 warning sign for Zhejiang Weiming Environment Protection that you should be aware of.

But note: Zhejiang Weiming Environment Protection 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.