Hangzhou Greatstar Industrial's (SZSE:002444) five-year total shareholder returns outpace the underlying earnings growth

Simply Wall St · 10/14 22:56

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on a lighter note, a good company can see its share price rise well over 100%. One great example is Hangzhou Greatstar Industrial Co., Ltd (SZSE:002444) which saw its share price drive 184% higher over five years. On top of that, the share price is up 15% in about a quarter. But this could be related to the strong market, which is up 12% in the last three months.

In light of the stock dropping 4.0% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

Check out our latest analysis for Hangzhou Greatstar Industrial

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Hangzhou Greatstar Industrial achieved compound earnings per share (EPS) growth of 16% per year. This EPS growth is lower than the 23% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
SZSE:002444 Earnings Per Share Growth October 14th 2024

We know that Hangzhou Greatstar Industrial has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Hangzhou Greatstar Industrial will grow revenue in the future.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Hangzhou Greatstar Industrial, it has a TSR of 198% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Hangzhou Greatstar Industrial shareholders have received a total shareholder return of 67% over the last year. That's including the dividend. That gain is better than the annual TSR over five years, which is 24%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 instance, we've identified 1 warning sign for Hangzhou Greatstar Industrial that you should be aware of.

Of course Hangzhou Greatstar Industrial may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.