Despite the downward trend in earnings at SEC Electric Machinery (SHSE:603988) the stock ascends 10.0%, bringing five-year gains to 170%

Simply Wall St · 03/12 22:36

When you buy a stock there is always a possibility that it could drop 100%. But when you pick a company that is really flourishing, you can make more than 100%. For example, the SEC Electric Machinery Co., Ltd. (SHSE:603988) share price has soared 144% in the last half decade. Most would be very happy with that. It's even up 10.0% in the last week.

Since it's been a strong week for SEC Electric Machinery shareholders, let's have a look at trend of the longer term fundamentals.

Check out our latest analysis for SEC Electric Machinery

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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, SEC Electric Machinery actually saw its EPS drop 21% per year.

Essentially, it doesn't seem likely that investors are focused on EPS. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.

The modest 0.3% dividend yield is unlikely to be propping up the share price. We are not particularly impressed by the annual compound revenue growth of 2.0% over five years. So why is the share price up? It's not immediately obvious to us, but a closer look at the company's progress over time might yield answers.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

earnings-and-revenue-growth
SHSE:603988 Earnings and Revenue Growth March 12th 2025

Balance sheet strength is crucial. 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. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, SEC Electric Machinery's TSR for the last 5 years was 170%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that SEC Electric Machinery shareholders have received a total shareholder return of 138% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 22%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand SEC Electric Machinery better, we need to consider many other factors. Take risks, for example - SEC Electric Machinery has 2 warning signs (and 1 which can't be ignored) we think you should know about.

Of course SEC Electric Machinery 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.