For many, the main point of investing in the stock market is to achieve spectacular returns. And we've seen some truly amazing gains over the years. Just think about the savvy investors who held Shannon Semiconductor Technology Co.,Ltd. (SZSE:300475) shares for the last five years, while they gained 788%. If that doesn't get you thinking about long term investing, we don't know what will. It's even up 8.7% in the last week. Anyone who held for that rewarding ride would probably be keen to talk about it.
The past week has proven to be lucrative for Shannon Semiconductor TechnologyLtd investors, so let's see if fundamentals drove the company's five-year performance.
View our latest analysis for Shannon Semiconductor TechnologyLtd
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...' 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.
During five years of share price growth, Shannon Semiconductor TechnologyLtd achieved compound earnings per share (EPS) growth of 34% per year. This EPS growth is lower than the 55% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 45.94.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Shannon Semiconductor TechnologyLtd has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Shannon Semiconductor TechnologyLtd's TSR for the last 5 years was 845%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Shannon Semiconductor TechnologyLtd has rewarded shareholders with a total shareholder return of 93% in the last twelve months. That's including the dividend. That's better than the annualised return of 57% over half a decade, implying that the company is doing better recently. 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. Take risks, for example - Shannon Semiconductor TechnologyLtd has 4 warning signs (and 3 which shouldn't be ignored) we think you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
