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AIA Engineering’s (NSE:AIAENG) five-year earnings growth trails the 10% YoY shareholder returns

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When we invest, we’re generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term AIA Engineering Limited (NSE:AIAENG) shareholders have enjoyed a 59% share price rise over the last half decade, well in excess of the market return of around 43% (not including dividends). On the other hand, the more recent gains haven’t been so impressive, with shareholders gaining just 6.0% , including dividends .

The past week has proven to be lucrative for AIA Engineering investors, so let’s see if fundamentals drove the company’s five-year performance.

See our latest analysis for AIA Engineering

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over half a decade, AIA Engineering managed to grow its earnings per share at 6.3% a year. This EPS growth is slower than the share price growth of 10% per year, over the same period. So it’s fair to assume the market has a higher opinion of the business than it did five years ago. And that’s hardly shocking given the track record of growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth
NSEI:AIAENG Earnings Per Share Growth June 22nd 2022

It’s probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on AIA Engineering’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, AIA Engineering’s TSR for the last 5 years was 64%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

We’re pleased to report that AIA Engineering shareholders have received a total shareholder return of 6.0% over one year. And that does include the dividend. Having said that, the five-year TSR of 10% a year, is even better. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It’s always interesting to track share price performance over the longer term. But to understand AIA Engineering better, we need to consider many other factors. Like risks, for instance. Every company has them, and we’ve spotted 3 warning signs for AIA Engineering (of which 1 is concerning!) you should know about.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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

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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