Zhengzhou Coal Mining Machinery Group (HKG:564) Has Gifted Shareholders With A Fantastic 214% Total Return On Their Investment

It's been a soft week for Zhengzhou Coal Mining Machinery Group Company Limited (HKG:564) shares, which are down 17%. But that scarcely detracts from the really solid long term returns generated by the company over five years. Indeed, the share price is up an impressive 177% in that time. To some, the recent pullback wouldn't be surprising after such a fast rise. Of course, that doesn't necessarily mean it's cheap now.

Check out our latest analysis for Zhengzhou Coal Mining Machinery Group

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 the last half decade, Zhengzhou Coal Mining Machinery Group became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the Zhengzhou Coal Mining Machinery Group share price is up 155% in the last three years. In the same period, EPS is up 66% per year. This EPS growth is higher than the 37% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that Zhengzhou Coal Mining Machinery Group has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Zhengzhou Coal Mining Machinery Group's financial health with this free report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 Zhengzhou Coal Mining Machinery Group, it has a TSR of 214% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Zhengzhou Coal Mining Machinery Group has rewarded shareholders with a total shareholder return of 155% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 26% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 3 warning signs for Zhengzhou Coal Mining Machinery Group that you should be aware of.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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

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This article by Simply Wall St is general in nature. 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.
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