When you buy a stock there is always a possibility that it could drop 100%. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Shenzhen Senior Technology Material Co., Ltd. (SZSE:300568) share price has soared 138% in the last half decade. Most would be very happy with that. The last week saw the share price soften some 2.6%.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for Shenzhen Senior Technology Material
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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, Shenzhen Senior Technology Material achieved compound earnings per share (EPS) growth of 20% per year. This EPS growth is reasonably close to the 19% average annual increase in the share price. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Indeed, it would appear the share price is reacting to the EPS.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Shenzhen Senior Technology Material has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Shenzhen Senior Technology Material's TSR for the last 5 years was 143%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We regret to report that Shenzhen Senior Technology Material shareholders are down 41% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 15%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 19% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. For example, we've discovered 4 warning signs for Shenzhen Senior Technology Material (1 doesn't sit too well with us!) that you should be aware of before investing here.
For those who like to find winning investments this free list of growing 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.