The five-year decline in earnings for Shandong Bohui Paper IndustryLtd SHSE:600966) isn't encouraging, but shareholders are still up 80% over that period

Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. For example, the Shandong Bohui Paper Industry Co.,Ltd. (SHSE:600966) share price is up 70% in the last 5 years, clearly besting the market return of around 15% (ignoring dividends).

Since the long term performance has been good but there's been a recent pullback of 6.9%, let's check if the fundamentals match the share price.

Check out our latest analysis for Shandong Bohui Paper IndustryLtd

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).

Shandong Bohui Paper IndustryLtd's earnings per share are down 5.1% per year, despite strong share price performance over five years.

Essentially, it doesn't seem likely that investors are focused on EPS. 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 0.3% dividend yield is unlikely to be propping up the share price. On the other hand, Shandong Bohui Paper IndustryLtd's revenue is growing nicely, at a compound rate of 17% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

Take a more thorough look at Shandong Bohui Paper IndustryLtd's financial health with this free report on its balance sheet.

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 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. In the case of Shandong Bohui Paper IndustryLtd, it has a TSR of 80% 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

While it's certainly disappointing to see that Shandong Bohui Paper IndustryLtd shares lost 7.0% throughout the year, that wasn't as bad as the market loss of 11%. Longer term investors wouldn't be so upset, since they would have made 12%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. It's always interesting to track share price performance over the longer term. But to understand Shandong Bohui Paper IndustryLtd better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Shandong Bohui Paper IndustryLtd 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.