Despite the downward trend in earnings at Shenzhen Huaqiang Industry (SZSE:000062) the stock advances 4.3%, bringing one-year gains to 176%

When you buy shares in a company, there is always a risk that the price drops to zero. But if you pick the right business to buy shares in, you can make more than you can lose. For example, the Shenzhen Huaqiang Industry Co., Ltd. (SZSE:000062) share price has soared 169% in the last 1 year. Most would be very happy with that, especially in just one year! It's up an even more impressive 226% over the last quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report. It is also impressive that the stock is up 114% over three years, adding to the sense that it is a real winner.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

View our latest analysis for Shenzhen Huaqiang Industry

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).

During the last year, Shenzhen Huaqiang Industry actually saw its earnings per share drop 46%.

Given the share price gain, we doubt the market is measuring progress with EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.

We are skeptical of the suggestion that the 0.8% dividend yield would entice buyers to the stock. We think that the revenue growth of 15% could have some investors interested. We do see some companies suppress earnings in order to accelerate revenue growth.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

If you are thinking of buying or selling Shenzhen Huaqiang Industry stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 Huaqiang Industry, it has a TSR of 176% for the last 1 year. 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

We're pleased to report that Shenzhen Huaqiang Industry shareholders have received a total shareholder return of 176% over one year. And that does include the dividend. That's better than the annualised return of 18% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 - Shenzhen Huaqiang Industry has 5 warning signs (and 3 which can't be ignored) we think you should know about.

Of course Shenzhen Huaqiang Industry 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.