By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Zhengyuan Zhihui Group Co.,Ltd. (SZSE:300645) share price is up 60% in the last three years, clearly besting the market decline of around 17% (not including dividends).

Since the stock has added CN¥397m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for Zhengyuan Zhihui GroupLtd

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Zhengyuan Zhihui GroupLtd was able to grow its EPS at 27% per year over three years, sending the share price higher. The average annual share price increase of 17% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat. Having said that, the market is still optimistic, given the P/E ratio of 52.50.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Zhengyuan Zhihui GroupLtd's key metrics by checking this interactive graph of Zhengyuan Zhihui GroupLtd's earnings, revenue and cash flow.

A Different Perspective

While it's certainly disappointing to see that Zhengyuan Zhihui GroupLtd shares lost 4.0% throughout the year, that wasn't as bad as the market loss of 4.6%. Longer term investors wouldn't be so upset, since they would have made 10%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. Is Zhengyuan Zhihui GroupLtd cheap compared to other companies? These 3 valuation measures might help you decide.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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