Novatek Microelectronics (TWSE:3034) shareholders have earned a 28% CAGR over the last five years

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But when you pick a company that is really flourishing, you can make more than 100%. For instance, the price of Novatek Microelectronics Corp. (TWSE:3034) stock is up an impressive 134% over the last five years. The last week saw the share price soften some 2.7%.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

See our latest analysis for Novatek Microelectronics

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over half a decade, Novatek Microelectronics managed to grow its earnings per share at 22% a year. This EPS growth is higher than the 19% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Novatek Microelectronics has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Novatek Microelectronics, it has a TSR of 249% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Novatek Microelectronics provided a TSR of 9.5% over the last twelve months. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 28% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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. To that end, you should be aware of the 1 warning sign we've spotted with Novatek Microelectronics .

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.