It's been a soft week for Shanghai Fudan Microelectronics Group Company Limited (HKG:1385) shares, which are down 17%. But that doesn't change the fact that shareholders have received really good returns over the last five years. Indeed, the share price is up an impressive 198% in that time. To some, the recent pullback wouldn't be surprising after such a fast rise. Only time will tell if there is still too much optimism currently reflected in the share price.

In light of the stock dropping 17% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last half decade, Shanghai Fudan Microelectronics Group became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. In fact, the Shanghai Fudan Microelectronics Group stock price is 18% lower in the last three years. Meanwhile, EPS is up 25% per year. So there seems to be a mismatch between the positive EPS growth and the change in the share price, which is down -6% per year.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Dive deeper into Shanghai Fudan Microelectronics Group's key metrics by checking this interactive graph of Shanghai Fudan Microelectronics Group's earnings, revenue and cash flow.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Shanghai Fudan Microelectronics Group, it has a TSR of 204% 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

Shanghai Fudan Microelectronics Group provided a TSR of 22% over the year (including dividends). That's fairly close to the broader market return. It has to be noted that the recent return falls short of the 25% shareholders have gained each year, over half a decade. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes Shanghai Fudan Microelectronics Group a stock worth watching. 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. To that end, you should be aware of the 3 warning signs we've spotted with Shanghai Fudan Microelectronics Group .

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 Hong Kong 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.