Jiangsu Asia-Pacific Light Alloy Technology's (SZSE:002540) five-year earnings growth trails the favorable shareholder returns

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Jiangsu Asia-Pacific Light Alloy Technology Co., Ltd. (SZSE:002540) shareholders have enjoyed a 28% share price rise over the last half decade, well in excess of the market decline of around 7.9% (not including dividends).

Since the stock has added CN¥481m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for Jiangsu Asia-Pacific Light Alloy Technology

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Over half a decade, Jiangsu Asia-Pacific Light Alloy Technology managed to grow its earnings per share at 12% a year. The EPS growth is more impressive than the yearly share price gain of 5% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 10.90 also suggests market apprehension.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

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

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Jiangsu Asia-Pacific Light Alloy Technology, it has a TSR of 56% 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

Although it hurts that Jiangsu Asia-Pacific Light Alloy Technology returned a loss of 6.7% in the last twelve months, the broader market was actually worse, returning a loss of 19%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 9% for each year. 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 Jiangsu Asia-Pacific Light Alloy Technology better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Jiangsu Asia-Pacific Light Alloy Technology (of which 1 is a bit concerning!) 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.