The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on the bright side, you can make far more than 100% on a really good stock. For instance, the price of Qinghai Salt Lake Industry Co.,Ltd (SZSE:000792) stock is up an impressive 113% over the last five years. On top of that, the share price is up 34% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 24% in 90 days).
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
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 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).
During the five years of share price growth, Qinghai Salt Lake IndustryLtd moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. 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. In fact, the Qinghai Salt Lake IndustryLtd stock price is 37% lower in the last three years. In the same period, EPS is up 16% per year. So there seems to be a mismatch between the positive EPS growth and the change in the share price, which is down -14% per year.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on Qinghai Salt Lake IndustryLtd's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
It's good to see that Qinghai Salt Lake IndustryLtd has rewarded shareholders with a total shareholder return of 14% in the last twelve months. Having said that, the five-year TSR of 16% a year, is even better. Before deciding if you like the current share price, check how Qinghai Salt Lake IndustryLtd scores on these 3 valuation metrics.
For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.
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.
