It hasn't been the best quarter for Zhejiang Jingsheng Mechanical & Electrical Co., Ltd. (SZSE:300316) shareholders, since the share price has fallen 26% in that time. But that doesn't change the fact that the returns over the last five years have been very strong. We think most investors would be happy with the 183% return, over that period. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. Ultimately business performance will determine whether the stock price continues the positive long term trend. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 50% decline over the last twelve months.

Since the stock has added CN¥3.3b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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 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, Zhejiang Jingsheng Mechanical & Electrical managed to grow its earnings per share at 50% a year. This EPS growth is higher than the 23% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. The reasonably low P/E ratio of 10.12 also suggests market apprehension.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It is of course excellent to see how Zhejiang Jingsheng Mechanical & Electrical has grown profits over the years, but the future is more important for shareholders. 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. 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, Zhejiang Jingsheng Mechanical & Electrical's TSR for the last 5 years was 191%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We regret to report that Zhejiang Jingsheng Mechanical & Electrical shareholders are down 50% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 22%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 24%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Zhejiang Jingsheng Mechanical & Electrical better, we need to consider many other factors. Take risks, for example - Zhejiang Jingsheng Mechanical & Electrical has 2 warning signs (and 1 which is potentially serious) we think you should know about.

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.

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.