One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Nanjing Iron & Steel Co., Ltd. (SHSE:600282) shareholders have seen the share price rise 23% over three years, well in excess of the market decline (26%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 17% in the last year , including dividends .

The past week has proven to be lucrative for Nanjing Iron & Steel investors, so let's see if fundamentals drove the company's three-year performance.

View our latest analysis for Nanjing Iron & Steel

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over the last three years, Nanjing Iron & Steel failed to grow earnings per share, which fell 15% (annualized).

Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Therefore, we think it's worth considering other metrics as well.

The dividend is no better now than it was three years ago, so that is unlikely to have driven the share price higher. But it's far more plausible that the revenue growth of 9.3% per year is viewed as evidence that Nanjing Iron & Steel is growing. In that case, the revenue growth might be more important to shareholders, for now, thus justifying a higer share price.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Take a more thorough look at Nanjing Iron & Steel's financial health with this free report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Nanjing Iron & Steel, it has a TSR of 53% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Nanjing Iron & Steel has rewarded shareholders with a total shareholder return of 17% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 9% per year), it would seem that the stock's performance has improved in recent times. 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 Nanjing Iron & Steel better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Nanjing Iron & Steel , and understanding them should be part of your investment process.

Of course Nanjing Iron & Steel may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.