Shenzhen Textile (Holdings) (SZSE:000045) rallies 8.0% this week, taking five-year gains to 51%

When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. To wit, the Shenzhen Textile (Holdings) share price has climbed 48% in five years, easily topping the market return of 19% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 17%, including dividends.

Since the stock has added CN¥425m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Shenzhen Textile (Holdings)

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 the five years of share price growth, Shenzhen Textile (Holdings) moved from a loss to profitability. That would generally be considered a positive, so we'd hope to see the share price to rise. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Shenzhen Textile (Holdings) share price is up 43% in the last three years. Meanwhile, EPS is up 0.9% per year. This EPS growth is lower than the 13% average annual increase in the share price over three years. So it's fair to assume the market has a higher opinion of the business than it did three years ago.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It might be well worthwhile taking a look at our free report on Shenzhen Textile (Holdings)'s earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Shenzhen Textile (Holdings), it has a TSR of 51% 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

Shenzhen Textile (Holdings) provided a TSR of 17% over the year (including dividends). That's fairly close to the broader market return. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 9%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. Before deciding if you like the current share price, check how Shenzhen Textile (Holdings) scores on 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.