The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. To wit, the Shanxi Lanhua Sci-Tech Venture Co.,Ltd (SHSE:600123) share price has flown 178% in the last three years. That sort of return is as solid as granite. It's also good to see the share price up 19% over the last quarter.
On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).
Shanxi Lanhua Sci-Tech VentureLtd was able to grow its EPS at 138% per year over three years, sending the share price higher. This EPS growth is higher than the 41% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.35.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Shanxi Lanhua Sci-Tech VentureLtd has grown profits over the years, but the future is more important for shareholders. This free interactive report on Shanxi Lanhua Sci-Tech VentureLtd'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). 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. In the case of Shanxi Lanhua Sci-Tech VentureLtd, it has a TSR of 243% 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
It's nice to see that Shanxi Lanhua Sci-Tech VentureLtd shareholders have received a total shareholder return of 24% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 21%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Shanxi Lanhua Sci-Tech VentureLtd better, we need to consider many other factors. For instance, we've identified 1 warning sign for Shanxi Lanhua Sci-Tech VentureLtd that you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.
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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.
