Shenzhen RongDa Photosensitive Science & Technology (SZSE:300576) sheds 3.8% this week, as yearly returns fall more in line with earnings growth

Shenzhen RongDa Photosensitive Science & Technology Co., Ltd. (SZSE:300576) shareholders might be concerned after seeing the share price drop 18% in the last month. But that does not change the realty that the stock's performance has been terrific, over five years. In fact, during that period, the share price climbed 450%. Impressive! So it might be that some shareholders are taking profits after good performance. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain.

Although Shenzhen RongDa Photosensitive Science & Technology has shed CN¥577m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for Shenzhen RongDa Photosensitive Science & Technology

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, Shenzhen RongDa Photosensitive Science & Technology achieved compound earnings per share (EPS) growth of 22% per year. This EPS growth is lower than the 41% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth. This optimism is visible in its fairly high P/E ratio of 129.57.

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

It might be well worthwhile taking a look at our free report on Shenzhen RongDa Photosensitive Science & Technology's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Shenzhen RongDa Photosensitive Science & Technology, it has a TSR of 454% 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

It's good to see that Shenzhen RongDa Photosensitive Science & Technology has rewarded shareholders with a total shareholder return of 40% in the last twelve months. That's including the dividend. Having said that, the five-year TSR of 41% a year, is even better. 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. Even so, be aware that Shenzhen RongDa Photosensitive Science & Technology is showing 2 warning signs in our investment analysis , and 1 of those is significant...

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.