Inner Mongolia ERDOS ResourcesLtd's (SHSE:600295) earnings growth rate lags the 24% CAGR delivered to shareholders

When you buy a stock there is always a possibility that it could drop 100%. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Inner Mongolia ERDOS Resources Co.,Ltd. (SHSE:600295) share price has soared 111% in the last half decade. Most would be very happy with that. It's down 3.7% in the last seven days.

Although Inner Mongolia ERDOS ResourcesLtd has shed CN¥980m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

View our latest analysis for Inner Mongolia ERDOS ResourcesLtd

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

During five years of share price growth, Inner Mongolia ERDOS ResourcesLtd achieved compound earnings per share (EPS) growth of 4.3% per year. This EPS growth is slower than the share price growth of 16% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.

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?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Inner Mongolia ERDOS ResourcesLtd the TSR over the last 5 years was 187%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 6.6% in the last year, Inner Mongolia ERDOS ResourcesLtd shareholders lost 3.8% (even including dividends). 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. Longer term investors wouldn't be so upset, since they would have made 24%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Inner Mongolia ERDOS ResourcesLtd is showing 1 warning sign in our investment analysis , you should know about...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.