Those who invested in China Automotive Engineering Research Institute (SHSE:601965) five years ago are up 157%

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%. One great example is China Automotive Engineering Research Institute Co., Ltd. (SHSE:601965) which saw its share price drive 130% higher over five years. The last week saw the share price soften some 2.4%.

So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.

See our latest analysis for China Automotive Engineering Research Institute

To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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.

During five years of share price growth, China Automotive Engineering Research Institute achieved compound earnings per share (EPS) growth of 14% per year. This EPS growth is lower than the 18% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That’s not necessarily surprising considering the five-year track record of earnings 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 June 27th 2024

We know that China Automotive Engineering Research Institute has improved its bottom line lately, but is it going to grow revenue? Check if analysts think China Automotive Engineering Research Institute will grow revenue in the future.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for China Automotive Engineering Research Institute the TSR over the last 5 years was 157%, 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!

A Different Perspective

While it’s certainly disappointing to see that China Automotive Engineering Research Institute shares lost 13% throughout the year, that wasn’t as bad as the market loss of 16%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 21% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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. Case in point: We’ve spotted 1 warning sign for China Automotive Engineering Research Institute 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.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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.

View the Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email [email protected]

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