The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For instance, the price of Shenzhen Inovance Technology Co.,Ltd (SZSE:300124) stock is up an impressive 285% over the last five years.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).
Over half a decade, Shenzhen Inovance TechnologyLtd managed to grow its earnings per share at 30% a year. This EPS growth is remarkably close to the 31% average annual increase in the share price. This indicates that investor sentiment towards the company has not changed a great deal. Indeed, it would appear the share price is reacting to the EPS.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Shenzhen Inovance TechnologyLtd 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?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Shenzhen Inovance TechnologyLtd's TSR for the last 5 years was 296%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Although it hurts that Shenzhen Inovance TechnologyLtd returned a loss of 20% in the last twelve months, the broader market was actually worse, returning a loss of 26%. Longer term investors wouldn't be so upset, since they would have made 32%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. Before deciding if you like the current share price, check how Shenzhen Inovance TechnologyLtd scores on these 3 valuation metrics.
We will like Shenzhen Inovance TechnologyLtd better if we see some big insider buys. While we wait, check out this free list of growing companies 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.