Tianshui Huatian Technology's (SZSE:002185) 7.4% CAGR outpaced the company's earnings growth over the same five-year period

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. To wit, the Tianshui Huatian Technology share price has climbed 41% in five years, easily topping the market decline of 7.9% (ignoring dividends).

Since the stock has added CN¥1.2b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Tianshui Huatian 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. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over half a decade, Tianshui Huatian Technology managed to grow its earnings per share at 2.6% a year. This EPS growth is lower than the 7% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This optimism is visible in its fairly high P/E ratio of 63.81.

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

We know that Tianshui Huatian Technology has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Tianshui Huatian Technology will grow revenue in the future.

A Different Perspective

Although it hurts that Tianshui Huatian Technology returned a loss of 13% in the last twelve months, the broader market was actually worse, returning a loss of 19%. Longer term investors wouldn't be so upset, since they would have made 7%, each year, over five years. 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 Tianshui Huatian Technology better, we need to consider many other factors. Even so, be aware that Tianshui Huatian Technology is showing 1 warning sign in our investment analysis , you should know about...

Of course Tianshui Huatian Technology may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.