When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Chongyi Zhangyuan Tungsten Co., Ltd. (SZSE:002378) share price is up 46% in the last 5 years, clearly besting the market return of around 32% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 4.4% , including dividends .
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
See our latest analysis for Chongyi Zhangyuan Tungsten
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 the last half decade, Chongyi Zhangyuan Tungsten became profitable. That would generally be considered a positive, so we'd expect the share price to be up.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It is of course excellent to see how Chongyi Zhangyuan Tungsten has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Chongyi Zhangyuan Tungsten's financial health with this free report on its balance sheet.
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Chongyi Zhangyuan Tungsten, it has a TSR of 50% 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 Chongyi Zhangyuan Tungsten shareholders have received a total shareholder return of 4.4% over the last year. Of course, that includes the dividend. However, the TSR over five years, coming in at 8% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. It's always interesting to track share price performance over the longer term. But to understand Chongyi Zhangyuan Tungsten better, we need to consider many other factors. For example, we've discovered 3 warning signs for Chongyi Zhangyuan Tungsten (1 is a bit concerning!) that you should be aware of before investing here.
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.