GnCenergy (KOSDAQ:119850) stock performs better than its underlying earnings growth over last five years

We think all investors should try to buy and hold high quality multi-year winners. While the best companies are hard to find, but they can generate massive returns over long periods. Just think about the savvy investors who held GnCenergy Co., Ltd (KOSDAQ:119850) shares for the last five years, while they gained 362%. If that doesn't get you thinking about long term investing, we don't know what will. It's also good to see the share price up 86% over the last quarter.

Since the stock has added ₩52b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

We've discovered 1 warning sign about GnCenergy. View them for free.

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).

Over half a decade, GnCenergy managed to grow its earnings per share at 44% a year. The EPS growth is more impressive than the yearly share price gain of 36% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 7.05 also suggests market apprehension.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Dive deeper into GnCenergy's key metrics by checking this interactive graph of GnCenergy'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). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of GnCenergy, it has a TSR of 391% 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 good to see that GnCenergy has rewarded shareholders with a total shareholder return of 126% in the last twelve months. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 37%. 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. 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. Take risks, for example - GnCenergy has 1 warning sign we think you should be aware of.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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