Investors more bullish on Guangdong Advertising GroupLtd (SZSE:002400) this week as stock rallies 6.3%, despite earnings trending downwards over past five years

Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Guangdong Advertising Group Co.,Ltd (SZSE:002400) share price is up 84% in the last 5 years, clearly besting the market return of around 10% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 12% in the last year, including dividends.

The past week has proven to be lucrative for Guangdong Advertising GroupLtd investors, so let's see if fundamentals drove the company's five-year performance.

View our latest analysis for Guangdong Advertising GroupLtd

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. 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.

During the five years of share price growth, Guangdong Advertising GroupLtd moved from a loss to profitability. That would generally be considered a positive, so we'd hope to see the share price to rise.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Dive deeper into Guangdong Advertising GroupLtd's key metrics by checking this interactive graph of Guangdong Advertising GroupLtd'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. 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 Advertising GroupLtd, it has a TSR of 88% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Guangdong Advertising GroupLtd has rewarded shareholders with a total shareholder return of 12% in the last twelve months. And that does include the dividend. Having said that, the five-year TSR of 13% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand Guangdong Advertising GroupLtd better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Guangdong Advertising GroupLtd , and understanding them should be part of your investment process.

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.