Wenzhou Yihua Connector's (SZSE:002897) five-year total shareholder returns outpace the underlying earnings growth

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Wenzhou Yihua Connector Co., Ltd. (SZSE:002897) share price is up 86% in the last 5 years, clearly besting the market return of around 22% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 10%, including dividends.

In light of the stock dropping 5.7% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

View our latest analysis for Wenzhou Yihua Connector

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

Over half a decade, Wenzhou Yihua Connector managed to grow its earnings per share at 24% a year. The EPS growth is more impressive than the yearly share price gain of 13% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Wenzhou Yihua Connector the TSR over the last 5 years was 89%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Wenzhou Yihua Connector shareholders have received a total shareholder return of 10% over one year. That's including the dividend. However, the TSR over five years, coming in at 14% per year, is even more impressive. It's always interesting to track share price performance over the longer term. But to understand Wenzhou Yihua Connector better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Wenzhou Yihua Connector you should be aware of, and 1 of them is a bit unpleasant.

We will like Wenzhou Yihua Connector 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.