For many, the main point of investing is to generate higher returns than the overall market. But even the best stock picker will only win with some selections. So we wouldn't blame long term China Pacific Insurance (Group) Co., Ltd. (SHSE:601601) shareholders for doubting their decision to hold, with the stock down 20% over a half decade. Contrary to the longer term story, the last month has been good for stockholders, with a share price gain of 9.3%.

It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.

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 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.

While the share price declined over five years, China Pacific Insurance (Group) actually managed to increase EPS by an average of 4.3% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.

Given EPS is up and the share price is down, it's clear the market is more concerned about the business than it was previously. Generally speaking, though, if the company can keep growing EPS then the share price will eventually follow.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

Dive deeper into China Pacific Insurance (Group)'s key metrics by checking this interactive graph of China Pacific Insurance (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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for China Pacific Insurance (Group) the TSR over the last 5 years was -1.6%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that China Pacific Insurance (Group) has rewarded shareholders with a total shareholder return of 5.7% in the last twelve months. Of course, that includes the dividend. Notably the five-year annualised TSR loss of 0.3% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for China Pacific Insurance (Group) you should know about.

Of course China Pacific Insurance (Group) 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.