Investing in Zhejiang Jingsheng Mechanical & Electrical (SZSE:300316) five years ago would have delivered you a 139% gain

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on a lighter note, a good company can see its share price rise well over 100%. Long term Zhejiang Jingsheng Mechanical & Electrical Co., Ltd. (SZSE:300316) shareholders would be well aware of this, since the stock is up 130% in five years. It's also good to see the share price up 51% over the last quarter. But this could be related to the strong market, which is up 32% in the last three months.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

See our latest analysis for Zhejiang Jingsheng Mechanical & Electrical

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over half a decade, Zhejiang Jingsheng Mechanical & Electrical managed to grow its earnings per share at 45% a year. The EPS growth is more impressive than the yearly share price gain of 18% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 11.22.

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

It is of course excellent to see how Zhejiang Jingsheng Mechanical & Electrical has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Zhejiang Jingsheng Mechanical & Electrical stock, you should check out this FREE detailed report on its balance sheet.

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. As it happens, Zhejiang Jingsheng Mechanical & Electrical's TSR for the last 5 years was 139%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Investors in Zhejiang Jingsheng Mechanical & Electrical had a tough year, with a total loss of 15% (including dividends), against a market gain of about 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 19% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Take risks, for example - Zhejiang Jingsheng Mechanical & Electrical has 3 warning signs (and 1 which can't be ignored) we think you should know about.

Of course Zhejiang Jingsheng Mechanical & Electrical 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.