Sunonwealth Electric Machine Industry's (TWSE:2421) five-year total shareholder returns outpace the underlying earnings growth

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. For instance, the price of Sunonwealth Electric Machine Industry Co., Ltd. (TWSE:2421) stock is up an impressive 207% over the last five years. But it's down 9.3% in the last week.

Since the long term performance has been good but there's been a recent pullback of 9.3%, let's check if the fundamentals match the share price.

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...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over half a decade, Sunonwealth Electric Machine Industry managed to grow its earnings per share at 15% a year. This EPS growth is lower than the 25% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.

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

It is of course excellent to see how Sunonwealth Electric Machine Industry has grown profits over the years, but the future is more important for shareholders. This free interactive report on Sunonwealth Electric Machine Industry's balance sheet strength is a great place to start, if you want to investigate the stock further.

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, Sunonwealth Electric Machine Industry's TSR for the last 5 years was 268%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Investors in Sunonwealth Electric Machine Industry had a tough year, with a total loss of 24% (including dividends), against a market gain of about 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 30%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Sunonwealth Electric Machine Industry you should know about.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.