When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. For example, the Ling Yun Industrial Corporation Limited (SHSE:600480) share price has soared 132% in the last half decade. Most would be very happy with that. Also pleasing for shareholders was the 26% gain in the last three months. But this could be related to the strong market, which is up 25% in the last three months.

The past week has proven to be lucrative for Ling Yun Industrial investors, so let's see if fundamentals drove the company's five-year performance.

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 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 the last half decade, Ling Yun Industrial became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Ling Yun Industrial share price has gained 4.8% in three years. During the same period, EPS grew by 25% each year. This EPS growth is higher than the 1.6% 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 image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Ling Yun Industrial has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 Ling Yun Industrial, it has a TSR of 150% for the last 5 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 Ling Yun Industrial shareholders have received a total shareholder return of 19% over the last year. Of course, that includes the dividend. However, the TSR over five years, coming in at 20% per year, is even more impressive. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Ling Yun Industrial you should know about.

We will like Ling Yun Industrial 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 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.