When we invest, we're generally looking for stocks that outperform the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term Liuzhou Liangmianzhen Co., Ltd. (SHSE:600249) shareholders have enjoyed a 66% share price rise over the last half decade, well in excess of the market return of around 30% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 16%.

Since the stock has added CN¥407m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Liuzhou Liangmianzhen

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. 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 the last half decade, Liuzhou Liangmianzhen became profitable. That's generally thought to be a genuine positive, so we would expect to see an increasing share price. 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. Indeed, the Liuzhou Liangmianzhen share price has gained 33% in three years. During the same period, EPS grew by 275% each year. This EPS growth is higher than the 10% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. Of course, with a P/E ratio of 82.03, the market remains optimistic.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It might be well worthwhile taking a look at our free report on Liuzhou Liangmianzhen's earnings, revenue and cash flow.

A Different Perspective

It's nice to see that Liuzhou Liangmianzhen shareholders have received a total shareholder return of 16% over the last year. That's better than the annualised return of 11% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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 1 warning sign for Liuzhou Liangmianzhen that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.