If you want to compound wealth in the stock market, you can do so by buying an index fund. But the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the FAW Jiefang Group Co.,Ltd (SZSE:000800) share price is up 16% in the last five years, slightly above the market return. Also positive is the 6.8% share price rise over the last year.

The past week has proven to be lucrative for FAW Jiefang GroupLtd investors, so let's see if fundamentals drove the company's five-year performance.

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, FAW Jiefang GroupLtd actually saw its EPS drop 21% per year.

Since the EPS are down strongly, it seems highly unlikely market participants are looking at EPS to value the company. Given that EPS is down, but the share price is up, it seems clear the market is focussed on other aspects of the business, at the moment.

We doubt the modest 1.6% dividend yield is attracting many buyers to the stock. It is not great to see that revenue has dropped by 16% per year over five years. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We know that FAW Jiefang GroupLtd has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on FAW Jiefang GroupLtd

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, FAW Jiefang GroupLtd's TSR for the last 5 years was 31%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that FAW Jiefang GroupLtd shareholders have received a total shareholder return of 8.8% over one year. Of course, that includes the dividend. That's better than the annualised return of 6% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand FAW Jiefang GroupLtd better, we need to consider many other factors. Even so, be aware that FAW Jiefang GroupLtd is showing 2 warning signs in our investment analysis , you should know about...

We will like FAW Jiefang GroupLtd better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.