Hengdian Group DMEGC Magnetics Ltd's (SZSE:002056) investors will be pleased with their decent 63% return over the last five years

Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Hengdian Group DMEGC Magnetics Co. ,Ltd (SZSE:002056) shareholders have enjoyed a 49% share price rise over the last half decade, well in excess of the market return of around 11% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 0.8%, including dividends.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

Check out our latest analysis for Hengdian Group DMEGC Magnetics Ltd

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Hengdian Group DMEGC Magnetics Ltd achieved compound earnings per share (EPS) growth of 11% per year. The EPS growth is more impressive than the yearly share price gain of 8% over the same period. So one could conclude that the broader market has become more cautious towards the stock.

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

This free interactive report on Hengdian Group DMEGC Magnetics Ltd'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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Hengdian Group DMEGC Magnetics Ltd the TSR over the last 5 years was 63%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Hengdian Group DMEGC Magnetics Ltd provided a TSR of 0.8% over the last twelve months. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 10% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand Hengdian Group DMEGC Magnetics Ltd better, we need to consider many other factors. For instance, we've identified 3 warning signs for Hengdian Group DMEGC Magnetics Ltd (1 shouldn't be ignored) that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.