When we invest, we're generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Advanced Micro-Fabrication Equipment Inc. China (SHSE:688012) share price is up 45% in the last 5 years, clearly besting the market return of around 0.5% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 1.4%, including dividends.

Although Advanced Micro-Fabrication Equipment China has shed CN¥5.2b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven 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.

Over half a decade, Advanced Micro-Fabrication Equipment China managed to grow its earnings per share at 54% a year. This EPS growth is higher than the 8% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. Having said that, the market is still optimistic, given the P/E ratio of 50.96.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

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

A Different Perspective

We're pleased to report that Advanced Micro-Fabrication Equipment China shareholders have received a total shareholder return of 1.4% over one year. And that does include the dividend. Having said that, the five-year TSR of 8% 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. It's always interesting to track share price performance over the longer term. But to understand Advanced Micro-Fabrication Equipment China better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Advanced Micro-Fabrication Equipment China .

If you are like me, then you will not want to miss this free list of undervalued small caps 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.

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