If you want to compound wealth in the stock market, you can do so by buying an index fund. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the Shaanxi Panlong Pharmaceutical Group Limited By Share Ltd (SZSE:002864) share price is up 21% in the last five years, slightly above the market return. Zooming in, the stock is actually down 18% in the last year.

Since it's been a strong week for Shaanxi Panlong Pharmaceutical Group Limited By Share shareholders, let's have a look at trend of the longer term fundamentals.

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 half a decade, Shaanxi Panlong Pharmaceutical Group Limited By Share managed to grow its earnings per share at 4.4% a year. This EPS growth is reasonably close to the 4% average annual increase in the share price. This indicates that investor sentiment towards the company has not changed a great deal. In fact, the share price seems to largely reflect the EPS growth.

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

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on Shaanxi Panlong Pharmaceutical Group Limited By Share's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. We note that for Shaanxi Panlong Pharmaceutical Group Limited By Share the TSR over the last 5 years was 24%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Shaanxi Panlong Pharmaceutical Group Limited By Share had a tough year, with a total loss of 17% (including dividends), against a market gain of about 15%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 4%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before forming an opinion on Shaanxi Panlong Pharmaceutical Group Limited By Share you might want to consider these 3 valuation metrics.

Of course Shaanxi Panlong Pharmaceutical Group Limited By Share 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.