Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Shanghai Dazhong Public Utilities(Group) Co.,Ltd. (SHSE:600635) share price is up 42% in the last 1 year, clearly besting the market return of around 9.7% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Having said that, the longer term returns aren't so impressive, with stock gaining just 13% in three years.

In light of the stock dropping 7.9% 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 one-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 year Shanghai Dazhong Public Utilities(Group)Ltd grew its earnings per share, moving from a loss to a profit.

While it's good to see positive EPS of CN¥0.037 this year, the loss wasn't too bad last year. But judging by the share price, the market is happy with the maiden profit. Some investors scan for companies that have just become profitable, since that's an important business development milestone.

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

Dive deeper into Shanghai Dazhong Public Utilities(Group)Ltd's key metrics by checking this interactive graph of Shanghai Dazhong Public Utilities(Group)Ltd's earnings, revenue and cash flow.

A Different Perspective

It's good to see that Shanghai Dazhong Public Utilities(Group)Ltd has rewarded shareholders with a total shareholder return of 44% in the last twelve months. Of course, that includes the dividend. There's no doubt those recent returns are much better than the TSR loss of 0.2% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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. For instance, we've identified 4 warning signs for Shanghai Dazhong Public Utilities(Group)Ltd (3 are a bit unpleasant) that 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.