China Zhenhua (Group) Science & Technology's (SZSE:000733) five-year earnings growth trails the impressive shareholder returns

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For example, the China Zhenhua (Group) Science & Technology Co., Ltd (SZSE:000733) share price has soared 201% in the last half decade. Most would be very happy with that. On top of that, the share price is up 33% in about a quarter.

The past week has proven to be lucrative for China Zhenhua (Group) Science & Technology investors, so let's see if fundamentals drove the company's five-year performance.

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 five years of share price growth, China Zhenhua (Group) Science & Technology achieved compound earnings per share (EPS) growth of 27% per year. This EPS growth is reasonably close to the 25% average annual increase in the share price. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Indeed, it would appear the share price is reacting to the EPS.

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

This free interactive report on China Zhenhua (Group) Science & Technology's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for China Zhenhua (Group) Science & Technology the TSR over the last 5 years was 216%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

China Zhenhua (Group) Science & Technology provided a TSR of 16% over the year (including dividends). That's fairly close to the broader market return. We should note here that the five-year TSR is more impressive, at 26% per year. Although the share price growth has slowed, the longer term story points to a business well worth watching. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - China Zhenhua (Group) Science & Technology has 1 warning sign we think you should be aware of.

We will like China Zhenhua (Group) Science & Technology better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.