By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at ZheJiang Haers Vacuum Containers Co.,Ltd. (SZSE:002615), which is up 45%, over three years, soundly beating the market decline of 31% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 2.5% in the last year, including dividends.

Since the stock has added CN¥474m 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.

ZheJiang Haers Vacuum ContainersLtd was able to grow its EPS at 134% per year over three years, sending the share price higher. The average annual share price increase of 13% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time. This cautious sentiment is reflected in its (fairly low) P/E ratio of 11.65.

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

It is of course excellent to see how ZheJiang Haers Vacuum ContainersLtd has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling ZheJiang Haers Vacuum ContainersLtd stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of ZheJiang Haers Vacuum ContainersLtd, it has a TSR of 56% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that ZheJiang Haers Vacuum ContainersLtd has rewarded shareholders with a total shareholder return of 2.5% in the last twelve months. Of course, that includes the dividend. Having said that, the five-year TSR of 7% a year, is even better. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. 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. Case in point: We've spotted 1 warning sign for ZheJiang Haers Vacuum ContainersLtd you should be aware of.

For those who like to find winning investments this free list of undervalued 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 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