Greatech Technology Berhad (KLSE:GREATEC) stock performs better than its underlying earnings growth over last five years

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, the Greatech Technology Berhad (KLSE:GREATEC) share price is up 61% in the last 5 years, clearly besting the market return of around 4.1% (ignoring dividends).

Since the stock has added RM377m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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

Over half a decade, Greatech Technology Berhad managed to grow its earnings per share at 21% a year. This EPS growth is higher than the 10% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days.

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

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. It might be well worthwhile taking a look at our free report on Greatech Technology Berhad's earnings, revenue and cash flow.

A Different Perspective

We regret to report that Greatech Technology Berhad shareholders are down 32% for the year. Unfortunately, that's worse than the broader market decline of 5.2%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 10%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Greatech Technology Berhad better, we need to consider many other factors. Take risks, for example - Greatech Technology Berhad has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Of course Greatech Technology Berhad 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 Malaysian 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.