L.K. Technology Holdings' (HKG:558) five-year earnings growth trails the enviable shareholder returns

We think all investors should try to buy and hold high quality multi-year winners. And we've seen some truly amazing gains over the years. Just think about the savvy investors who held L.K. Technology Holdings Limited (HKG:558) shares for the last five years, while they gained 717%. If that doesn't get you thinking about long term investing, we don't know what will. In more good news, the share price has risen 21% in thirty days. But this could be related to good market conditions -- stocks in its market are up 11% in the last month. We love happy stories like this one. The company should be really proud of that performance!

Since the stock has added HK$696m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for L.K. Technology Holdings

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, L.K. Technology Holdings achieved compound earnings per share (EPS) growth of 32% per year. This EPS growth is slower than the share price growth of 52% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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. In the case of L.K. Technology Holdings, it has a TSR of 791% for the last 5 years. 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

L.K. Technology Holdings provided a TSR of 1.0% over the last twelve months. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 55% 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 L.K. Technology Holdings better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for L.K. Technology Holdings you should be aware of.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong 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.