One simple way to benefit from the stock market is to buy an index fund. But if you choose individual stocks with prowess, you can make superior returns. For example, Guangdong Provincial Expressway Development Co., Ltd. (SZSE:000429) shareholders have seen the share price rise 84% over three years, well in excess of the market decline (18%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 64% in the last year, including dividends.

Since the stock has added CN¥2.0b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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.

Over the last three years, Guangdong Provincial Expressway Development failed to grow earnings per share, which fell 4.2% (annualized).

Given the share price resilience, we don't think the (declining) EPS numbers are a good measure of how the business is moving forward, right now. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The dividend is no better now than it was three years ago, so that is unlikely to have driven the share price higher. Many investors probably think the fact that Guangdong Provincial Expressway Development's revenue has been declining at a rate of 3.2% per year is a real negative. If revenue keeps shrinking, it may be difficult to find earnings growth in the future.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. You can see what analysts are predicting for Guangdong Provincial Expressway Development in this interactive graph of future profit estimates.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. In the case of Guangdong Provincial Expressway Development, it has a TSR of 121% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Guangdong Provincial Expressway Development shareholders have received a total shareholder return of 64% over one year. And that does include the dividend. That's better than the annualised return of 17% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Guangdong Provincial Expressway Development better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Guangdong Provincial Expressway Development .

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.