China Automotive Engineering Research Institute (SHSE:601965) shareholders have earned a 21% CAGR over the last five years

While China Automotive Engineering Research Institute Co., Ltd. (SHSE:601965) shareholders are probably generally happy, the stock hasn’t had particularly good run recently, with the share price falling 18% in the last quarter. But in stark contrast, the returns over the last half decade have impressed. We think most investors would be happy with the 127% return, over that period. To some, the recent pullback wouldn’t be surprising after such a fast rise. Of course, that doesn’t necessarily mean it’s cheap now.

With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

Check out our latest analysis for China Automotive Engineering Research Institute

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over half a decade, China Automotive Engineering Research Institute managed to grow its earnings per share at 14% a year. So the EPS growth rate is rather close to the annualized share price gain of 18% per year. Therefore one could conclude that sentiment towards the shares hasn’t morphed very much. In fact, the share price seems to largely reflect the EPS growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
SHSE:601965 Earnings Per Share Growth March 14th 2024

We know that China Automotive Engineering Research Institute has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, China Automotive Engineering Research Institute’s TSR for the last 5 years was 154%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 12% in the twelve months, China Automotive Engineering Research Institute shareholders did even worse, losing 20% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Longer term investors wouldn’t be so upset, since they would have made 21%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It’s always interesting to track share price performance over the longer term. But to understand China Automotive Engineering Research Institute better, we need to consider many other factors. Take risks, for example – China Automotive Engineering Research Institute has 1 warning sign we think you should be aware of.

But note: China Automotive Engineering Research Institute may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

Valuation is complex, but we’re helping make it simple.

Find out whether China Automotive Engineering Research Institute is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.

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