Despite lower earnings than five years ago, Chung Hwa Chemical Industrial Works (TWSE:1727) investors are up 174% since then

Chung Hwa Chemical Industrial Works, Ltd. (TWSE:1727) shareholders might be concerned after seeing the share price drop 15% in the last quarter. But in stark contrast, the returns over the last half decade have impressed. In fact, the share price is 158% higher today. We think it's more important to dwell on the long term returns than the short term returns. Ultimately business performance will determine whether the stock price continues the positive long term trend. Unfortunately not all shareholders will have held it for five years, so spare a thought for those caught in the 36% decline over the last three years: that's a long time to wait for profits.

Since the long term performance has been good but there's been a recent pullback of 11%, let's check if the fundamentals match the share price.

See our latest analysis for Chung Hwa Chemical Industrial Works

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 five years of share price growth, Chung Hwa Chemical Industrial Works actually saw its EPS drop 0.5% per year.

By glancing at these numbers, we'd posit that the decline in earnings per share is not representative of how the business has changed over the years. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

The modest 1.0% dividend yield is unlikely to be propping up the share price. It is not great to see that revenue has dropped by 1.2% per year over five years. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

If you are thinking of buying or selling Chung Hwa Chemical Industrial Works stock, you should check out this FREE detailed report on its balance sheet.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Chung Hwa Chemical Industrial Works, it has a TSR of 174% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Chung Hwa Chemical Industrial Works provided a TSR of 3.5% over the last twelve months. But that return falls short of the market. On the bright side, the longer term returns (running at about 22% 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. It's always interesting to track share price performance over the longer term. But to understand Chung Hwa Chemical Industrial Works better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Chung Hwa Chemical Industrial Works (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

Of course Chung Hwa Chemical Industrial Works 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.