Yulon Finance's (TWSE:9941) five-year earnings growth trails the impressive shareholder returns

When you buy a stock there is always a possibility that it could drop 100%. But when you pick a company that is really flourishing, you can make more than 100%. For instance, the price of Yulon Finance Corporation (TWSE:9941) stock is up an impressive 106% over the last five years. In the last week the share price is up 3.7%.

The past week has proven to be lucrative for Yulon Finance investors, so let's see if fundamentals drove the company's five-year performance.

Check out our latest analysis for Yulon Finance

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 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).

During five years of share price growth, Yulon Finance achieved compound earnings per share (EPS) growth of 15% per year. This EPS growth is reasonably close to the 16% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. In fact, the share price seems to largely reflect the EPS growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Yulon Finance, it has a TSR of 148% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 40% in the last year, Yulon Finance shareholders lost 21% (even including dividends). 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 20%, 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. 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. For instance, we've identified 2 warning signs for Yulon Finance (1 is potentially serious) that you should be aware of.

Of course Yulon Finance 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 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com