By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Hubei W-olf Photoelectric Technology Co., Ltd. (SZSE:002962) share price is up 41% in the last three years, clearly besting the market decline of around 20% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 29% in the last year, including dividends.

Since it's been a strong week for Hubei W-olf Photoelectric Technology shareholders, let's have a look at trend of the longer term fundamentals.

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 the three years of share price growth, Hubei W-olf Photoelectric Technology actually saw its earnings per share (EPS) drop 5.1% per year.

So we doubt that the market is looking to EPS for its main judge of the company's value. Given this situation, it makes sense to look at other metrics too.

The modest 1.1% dividend yield is unlikely to be propping up the share price. It may well be that Hubei W-olf Photoelectric Technology revenue growth rate of 6.1% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Hubei W-olf Photoelectric Technology's TSR for the last 3 years was 49%, 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 Hubei W-olf Photoelectric Technology shareholders have received a total shareholder return of 29% over one year. That's including the dividend. Notably the five-year annualised TSR loss of 4% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. 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 example, we've discovered 2 warning signs for Hubei W-olf Photoelectric Technology (1 is concerning!) that you should be aware of before investing here.

Of course Hubei W-olf Photoelectric Technology 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.