Recent 8.4% pullback isn't enough to hurt long-term Anhui Tongfeng Electronics (SHSE:600237) shareholders, they're still up 121% over 5 years

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 the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. One great example is Anhui Tongfeng Electronics Company Limited (SHSE:600237) which saw its share price drive 121% higher over five years. It's also good to see the share price up 55% over the last quarter. But this move may well have been assisted by the reasonably buoyant market (up 24% in 90 days).

While the stock has fallen 8.4% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

View our latest analysis for Anhui Tongfeng Electronics

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 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).

During the last half decade, Anhui Tongfeng Electronics became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Anhui Tongfeng Electronics share price has gained 3.9% in three years. During the same period, EPS grew by 33% each year. This EPS growth is higher than the 1.3% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Anhui Tongfeng Electronics has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Anhui Tongfeng Electronics' balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Investors in Anhui Tongfeng Electronics had a tough year, with a total loss of 16%, against a market gain of about 6.2%. 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 17% 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. Before forming an opinion on Anhui Tongfeng Electronics you might want to consider these 3 valuation metrics.

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.

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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.