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. For example, the Gordon Auto Body Parts Co., Ltd. (TPE:1524) share price is up 39% in the last 5 years, clearly besting the market return of around 30% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 2.8% in the last year , including dividends .
View 3 warning signs we detected for Gordon Auto Body Parts
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...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the five years of share price growth, Gordon Auto Body Parts moved from a loss to profitability. That would generally be considered a positive, so we'd expect the share price to be up.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
While share prices often depend primarily on earnings, they can be sensitive to an investment's risk level as well. For example, we've discovered 3 warning signs for Gordon Auto Body Parts (of which 1 is major) which any shareholder or potential investor should be aware of.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Gordon Auto Body Parts's TSR for the last 5 years was 59%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Gordon Auto Body Parts provided a TSR of 2.8% over the last twelve months. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 9.7% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. Before forming an opinion on Gordon Auto Body Parts you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.
We will like Gordon Auto Body Parts better if we see some big insider buys. While we wait, check out this free list of growing companies 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 TW exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.