Dongsung FineTec (KOSDAQ:033500) delivers shareholders decent 14% CAGR over 5 years, surging 18% in the last week alone

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. To wit, the Dongsung FineTec share price has climbed 64% in five years, easily topping the market return of 41% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 2.7%, including dividends.

The past week has proven to be lucrative for Dongsung FineTec investors, so let's see if fundamentals drove the company's five-year performance.

View our latest analysis for Dongsung FineTec

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 the five years of share price growth, Dongsung FineTec moved from a loss to profitability. That's generally thought to be a genuine positive, so investors may expect to see an increasing share price. 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 Dongsung FineTec share price is up 21% in the last three years. Meanwhile, EPS is up 8.1% per year. This EPS growth is higher than the 6% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 11.47.

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

We know that Dongsung FineTec has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Dongsung FineTec's TSR for the last 5 years was 88%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Dongsung FineTec shareholders have received a total shareholder return of 2.7% over one year. That's including the dividend. Having said that, the five-year TSR of 14% a year, is even better. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. 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. Case in point: We've spotted 1 warning sign for Dongsung FineTec you should be aware of.

Of course Dongsung FineTec may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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