We think all investors should try to buy and hold high quality multi-year winners. And we've seen some truly amazing gains over the years. To wit, the Shanghai Fudan Microelectronics Group Company Limited (HKG:1385) share price has soared 371% over five years. 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 72% over the last quarter. This could be related to the recent financial results, released recently - you can catch up on the most recent data by reading our company report.
Since the long term performance has been good but there's been a recent pullback of 5.9%, let's check if the fundamentals match the share price.
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 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 the last half decade, Shanghai Fudan Microelectronics Group became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Shanghai Fudan Microelectronics Group share price is up 2.6% in the last three years. Meanwhile, EPS is up 0.3% per year. Notably, the EPS growth has been slower than the annualised share price gain of 0.9% over three years. So one can reasonably conclude the market is more enthusiastic about the stock than it was three years ago.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It might be well worthwhile taking a look at our free report on Shanghai Fudan Microelectronics Group's earnings, revenue and cash flow.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Shanghai Fudan Microelectronics Group's TSR for the last 5 years was 380%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's nice to see that Shanghai Fudan Microelectronics Group shareholders have received a total shareholder return of 171% over the last year. And that does include 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. For instance, we've identified 2 warning signs for Shanghai Fudan Microelectronics Group that you should be aware of.
But note: Shanghai Fudan Microelectronics Group 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 Hong Kong 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.