Guangdong Dowstone Technology (SZSE:300409) pulls back 6.0% this week, but still delivers shareholders decent 49% return over 1 year

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But if you pick the right individual stocks, you could make more than that. For example, the Guangdong Dowstone Technology Co., Ltd. (SZSE:300409) share price is up 44% in the last 1 year, clearly besting the market return of around 11% (not including dividends). So that should have shareholders smiling. Zooming out, the stock is actually down 42% in the last three years.

In light of the stock dropping 6.0% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive one-year return.

View our latest analysis for Guangdong Dowstone Technology

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 the last year Guangdong Dowstone Technology grew its earnings per share, moving from a loss to a profit.

When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action.

However the year on year revenue growth of 16% would help. Many businesses do go through a phase where they have to forgo some profits to drive business development, and sometimes its for the best.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We know that Guangdong Dowstone Technology has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Guangdong Dowstone Technology in this interactive graph of future profit estimates.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Guangdong Dowstone Technology, it has a TSR of 49% for the last 1 year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Guangdong Dowstone Technology shareholders have received a total shareholder return of 49% over one year. That's including the dividend. That gain is better than the annual TSR over five years, which is 7%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 5 warning signs for Guangdong Dowstone Technology you should be aware of, and 2 of them make us uncomfortable.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.