Cheng De Lolo's (SZSE:000848) five-year earnings growth trails the 9.4% YoY shareholder returns

When we invest, we're generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. To wit, the Cheng De Lolo share price has climbed 37% in five years, easily topping the market return of 17% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 30%, including dividends.

Since the stock has added CN¥520m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Cheng De Lolo

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. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over half a decade, Cheng De Lolo managed to grow its earnings per share at 8.6% a year. This EPS growth is higher than the 6% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

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

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Cheng De Lolo, it has a TSR of 56% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Cheng De Lolo shareholders have received a total shareholder return of 30% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 9%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Cheng De Lolo better, we need to consider many other factors. To that end, you should learn about the 2 warning signs we've spotted with Cheng De Lolo (including 1 which shouldn't be ignored) .

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.