Zhen Ding Technology Holding (TWSE:4958) shareholders have earned a 12% CAGR over the last three years

Buying a low-cost index fund will get you the average market return. But if you invest in individual stocks, some are likely to underperform. That's what has happened with the Zhen Ding Technology Holding Limited (TWSE:4958) share price. It's up 25% over three years, but that is below the market return. In the last year the stock has gained 18%.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

View our latest analysis for Zhen Ding Technology Holding

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 the three years of share price growth, Zhen Ding Technology Holding actually saw its earnings per share (EPS) drop 3.4% per year.

Given the share price resilience, we don't think the (declining) EPS numbers are a good measure of how the business is moving forward, right now. Therefore, it makes sense to look into other metrics.

The revenue drop of 0.2% is as underwhelming as some politicians. The only thing that's clear is there is low correlation between Zhen Ding Technology Holding's share price and its historic fundamental data. Further research may be required!

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

We know that Zhen Ding Technology Holding has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Zhen Ding Technology Holding

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 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 Zhen Ding Technology Holding, it has a TSR of 42% for the last 3 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

Zhen Ding Technology Holding's TSR for the year was broadly in line with the market average, at 22%. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 4%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. 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 for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Zhen Ding Technology Holding , and understanding them should be part of your investment process.

We will like Zhen Ding Technology Holding better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.