Those who invested in Chung-Hsin Electric and Machinery Manufacturing (TWSE:1513) five years ago are up 978%

Long term investing can be life changing when you buy and hold the truly great businesses. While the best companies are hard to find, but they can generate massive returns over long periods. Don't believe it? Then look at the Chung-Hsin Electric and Machinery Manufacturing Corp. (TWSE:1513) share price. It's 785% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. On top of that, the share price is up 54% in about a quarter. We love happy stories like this one. The company should be really proud of that performance!

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

View our latest analysis for Chung-Hsin Electric and Machinery Manufacturing

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 five years of share price growth, Chung-Hsin Electric and Machinery Manufacturing achieved compound earnings per share (EPS) growth of 19% per year. This EPS growth is slower than the share price growth of 55% 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. And that's hardly shocking given the track record of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 57.33.

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

It might be well worthwhile taking a look at our free report on Chung-Hsin Electric and Machinery Manufacturing's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. We note that for Chung-Hsin Electric and Machinery Manufacturing the TSR over the last 5 years was 978%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Chung-Hsin Electric and Machinery Manufacturing shareholders have received a total shareholder return of 75% over one year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 61%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Consider risks, for instance. Every company has them, and we've spotted 5 warning signs for Chung-Hsin Electric and Machinery Manufacturing you should know about.

We will like Chung-Hsin Electric and Machinery Manufacturing 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 Taiwanese 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.