Suzhou Hengmingda Electronic Technology's (SZSE:002947) earnings growth rate lags the 17% CAGR delivered to shareholders

One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Suzhou Hengmingda Electronic Technology Co., Ltd. (SZSE:002947) shareholders have seen the share price rise 55% over three years, well in excess of the market decline (27%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 45%, including dividends.

Since the long term performance has been good but there's been a recent pullback of 6.5%, let's check if the fundamentals match the share price.

View our latest analysis for Suzhou Hengmingda Electronic Technology

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).

Suzhou Hengmingda Electronic Technology was able to grow its EPS at 44% per year over three years, sending the share price higher. The average annual share price increase of 16% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock.

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

Dive deeper into Suzhou Hengmingda Electronic Technology's key metrics by checking this interactive graph of Suzhou Hengmingda Electronic Technology's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Suzhou Hengmingda Electronic Technology's TSR for the last 3 years was 61%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's nice to see that Suzhou Hengmingda Electronic Technology shareholders have received a total shareholder return of 45% over the last year. That's including the dividend. That's better than the annualised return of 8% 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. 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. For example, we've discovered 1 warning sign for Suzhou Hengmingda Electronic Technology that you should be aware of before investing here.

We will like Suzhou Hengmingda Electronic 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.