It's been a soft week for Yantai Zhenghai Magnetic Material Co., Ltd. (SZSE:300224) shares, which are down 12%. But that doesn't change the fact that the returns over the last five years have been pleasing. Its return of 85% has certainly bested the market return!

In light of the stock dropping 12% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the five years of share price growth, Yantai Zhenghai Magnetic Material moved from a loss to profitability. That's generally thought to be a genuine positive, so investors may expect to see an increasing share price. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Yantai Zhenghai Magnetic Material share price is up 15% in the last three years. In the same period, EPS is up 6.4% per year. This EPS growth is higher than the 5% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days.

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

This free interactive report on Yantai Zhenghai Magnetic Material's earnings, revenue and cash flow 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Yantai Zhenghai Magnetic Material, it has a TSR of 100% 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

It's nice to see that Yantai Zhenghai Magnetic Material shareholders have received a total shareholder return of 20% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 15%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 Yantai Zhenghai Magnetic Material that you should be aware of.

Of course Yantai Zhenghai Magnetic Material 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 Chinese 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.