Shandong Sacred Sun Power SourcesLtd's (SZSE:002580) five-year earnings growth trails the decent shareholder returns

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. To wit, the Shandong Sacred Sun Power SourcesLtd share price has climbed 82% in five years, easily topping the market return of 19% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 4.7% in the last year, including dividends.

The past week has proven to be lucrative for Shandong Sacred Sun Power SourcesLtd investors, so let's see if fundamentals drove the company's five-year performance.

Check out our latest analysis for Shandong Sacred Sun Power SourcesLtd

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).

During five years of share price growth, Shandong Sacred Sun Power SourcesLtd achieved compound earnings per share (EPS) growth of 39% per year. This EPS growth is higher than the 13% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.

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

It might be well worthwhile taking a look at our free report on Shandong Sacred Sun Power SourcesLtd's earnings, revenue and cash flow.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Shandong Sacred Sun Power SourcesLtd's TSR for the last 5 years was 86%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Shandong Sacred Sun Power SourcesLtd shareholders have received returns of 4.7% over twelve months (even including dividends), which isn't far from the general market return. We should note here that the five-year TSR is more impressive, at 13% per year. Although the share price growth has slowed, the longer term story points to a business well worth watching. 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. For example, we've discovered 2 warning signs for Shandong Sacred Sun Power SourcesLtd that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.