Investors more bullish on Chieftek Precision (TWSE:1597) this week as stock soars 13%, despite earnings trending downwards over past year

If you want to compound wealth in the stock market, you can do so by buying an index fund. But investors can boost returns by picking market-beating companies to own shares in. To wit, the Chieftek Precision Co., Ltd. (TWSE:1597) share price is 63% higher than it was a year ago, much better than the market return of around 33% (not including dividends) in the same period. So that should have shareholders smiling. Having said that, the longer term returns aren't so impressive, with stock gaining just 28% in three years.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

View our latest analysis for Chieftek Precision

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Over the last twelve months, Chieftek Precision actually shrank its EPS by 73%.

This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We are skeptical of the suggestion that the 0.8% dividend yield would entice buyers to the stock. Unfortunately Chieftek Precision's fell 29% over twelve months. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

It's nice to see that Chieftek Precision shareholders have received a total shareholder return of 65% over the last year. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 9% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Chieftek Precision is showing 3 warning signs in our investment analysis , and 2 of those don't sit too well with us...

But note: Chieftek Precision may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.