The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. Long term Lushang Freda Pharmaceutical Co.,Ltd. (SHSE:600223) shareholders would be well aware of this, since the stock is up 145% in five years. And in the last month, the share price has gained 20%. But the price may well have benefitted from a buoyant market, since stocks have gained 9.9% in the last thirty days.

Since the stock has added CN¥498m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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 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.

Lushang Freda PharmaceuticalLtd's earnings per share are down 5.5% per year, despite strong share price performance over five years.

This means it's unlikely the market is judging the company based on earnings growth. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.

We doubt the modest 1.2% dividend yield is attracting many buyers to the stock. On the other hand, Lushang Freda PharmaceuticalLtd's revenue is growing nicely, at a compound rate of 4.6% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that Lushang Freda PharmaceuticalLtd has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Lushang Freda PharmaceuticalLtd will earn in the future (free profit forecasts).

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Lushang Freda PharmaceuticalLtd, it has a TSR of 157% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

The total return of 11% received by Lushang Freda PharmaceuticalLtd shareholders over the last year isn't far from the market return of -11%. The silver lining is that longer term investors would have made a total return of 21% per year over half a decade. If the fundamental data remains strong, and the share price is simply down on sentiment, then this could be an opportunity worth investigating. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Lushang Freda PharmaceuticalLtd has 2 warning signs we think you should be aware of.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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.