If you want to compound wealth in the stock market, you can do so by buying an index fund. But the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Founder Securities Co., Ltd. (SHSE:601901) share price is 49% higher than it was five years ago, which is more than the market average. Zooming in, the stock is up a respectable 8.1% in the last year.
Although Founder Securities has shed CN¥1.9b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
See our latest analysis for Founder Securities
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 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, Founder Securities achieved compound earnings per share (EPS) growth of 18% per year. The EPS growth is more impressive than the yearly share price gain of 8% over the same period. So it seems the market isn't so enthusiastic 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 Founder Securities has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Founder Securities' financial health with this free report on its balance sheet.
A Different Perspective
It's good to see that Founder Securities has rewarded shareholders with a total shareholder return of 8.3% in the last twelve months. That's including the dividend. However, the TSR over five years, coming in at 9% per year, is even more impressive. Before forming an opinion on Founder Securities you might want to consider these 3 valuation metrics.
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.