Anhui Honglu Steel Construction(Group)'s (SZSE:002541) 15% CAGR outpaced the company's earnings growth over the same five-year period

The last three months have been tough on Anhui Honglu Steel Construction(Group) CO., LTD (SZSE:002541) shareholders, who have seen the share price decline a rather worrying 31%. But that doesn't change the fact that the returns over the last five years have been pleasing. After all, the share price is up a market-beating 93% in that time. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 58% decline over the last twelve months.

The past week has proven to be lucrative for Anhui Honglu Steel Construction(Group) investors, so let's see if fundamentals drove the company's five-year performance.

Check out our latest analysis for Anhui Honglu Steel Construction(Group)

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Anhui Honglu Steel Construction(Group) achieved compound earnings per share (EPS) growth of 20% per year. This EPS growth is higher than the 14% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.79.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on Anhui Honglu Steel Construction(Group)'s earnings, revenue and cash flow.

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. As it happens, Anhui Honglu Steel Construction(Group)'s TSR for the last 5 years was 103%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

We regret to report that Anhui Honglu Steel Construction(Group) shareholders are down 57% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 19%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 15% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Anhui Honglu Steel Construction(Group) better, we need to consider many other factors. Take risks, for example - Anhui Honglu Steel Construction(Group) has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

We will like Anhui Honglu Steel Construction(Group) better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.