Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Nanjing Iron & Steel Co., Ltd. (SHSE:600282) share price is up 38% in the last 5 years, clearly besting the market return of around 13% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 31%, including dividends.
Since the long term performance has been good but there's been a recent pullback of 5.3%, let's check if the fundamentals match the share price.
Check out our latest analysis for Nanjing Iron & Steel
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 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.
Nanjing Iron & Steel's earnings per share are down 14% per year, despite strong share price performance over five years.
Essentially, it doesn't seem likely that investors are focused on EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We note that the dividend has not increased, so that doesn't seem to explain the increase, either. But it's reasonably likely that the 9.8% annual compound revenue growth is considered evidence that Nanjing Iron & Steel has plenty of growth ahead of it. Indeed, revenue growth, rather than EPS, might be the current focus of the business.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that Nanjing Iron & Steel has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Nanjing Iron & Steel stock, you should check out this free report showing analyst profit forecasts.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Nanjing Iron & Steel the TSR over the last 5 years was 103%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
It's good to see that Nanjing Iron & Steel has rewarded shareholders with a total shareholder return of 31% in the last twelve months. That's including the dividend. That's better than the annualised return of 15% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Nanjing Iron & Steel 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.
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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.