For many, the main point of investing in the stock market is to achieve spectacular returns. While the best companies are hard to find, but they can generate massive returns over long periods. Just think about the savvy investors who held DongHua Testing Technology Co. , Ltd. (SZSE:300354) shares for the last five years, while they gained 534%. This just goes to show the value creation that some businesses can achieve. And in the last month, the share price has gained 30%. Anyone who held for that rewarding ride would probably be keen to talk about it.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
View our latest analysis for DongHua Testing Technology
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Over half a decade, DongHua Testing Technology managed to grow its earnings per share at 92% a year. This EPS growth is higher than the 45% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that DongHua Testing Technology has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on DongHua Testing Technology's balance sheet strength 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). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for DongHua Testing Technology the TSR over the last 5 years was 552%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's nice to see that DongHua Testing Technology shareholders have received a total shareholder return of 49% over the last year. And that does include the dividend. That's better than the annualised return of 45% 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. Even so, be aware that DongHua Testing Technology is showing 2 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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.
