Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Zhejiang Xiantong Rubber&Plastic Co.,Ltd (SHSE:603239) share price is up 71% in the last 5 years, clearly besting the market return of around 3.3% (ignoring dividends).

Since the stock has added CN¥509m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Over half a decade, Zhejiang Xiantong Rubber&PlasticLtd managed to grow its earnings per share at 9.3% a year. This EPS growth is reasonably close to the 11% average annual increase in the share price. This indicates that investor sentiment towards the company has not changed a great deal. Indeed, it would appear the share price is reacting to the EPS.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Zhejiang Xiantong Rubber&PlasticLtd has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Zhejiang Xiantong Rubber&PlasticLtd will grow revenue in the future.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Zhejiang Xiantong Rubber&PlasticLtd, it has a TSR of 97% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While it's never nice to take a loss, Zhejiang Xiantong Rubber&PlasticLtd shareholders can take comfort that , including dividends,their trailing twelve month loss of 5.6% wasn't as bad as the market loss of around 16%. Longer term investors wouldn't be so upset, since they would have made 15%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. 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. To that end, you should be aware of the 1 warning sign we've spotted with Zhejiang Xiantong Rubber&PlasticLtd .

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com