The simplest way to invest in stocks is to buy exchange traded funds. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Shengyi Technology Co.,Ltd. (SHSE:600183) share price is up 38% in the last 1 year, clearly besting the market return of around 9.8% (not including dividends). So that should have shareholders smiling. Having said that, the longer term returns aren't so impressive, with stock gaining just 3.2% in three years.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Shengyi TechnologyLtd was able to grow EPS by 35% in the last twelve months. We note that the earnings per share growth isn't far from the share price growth (of 38%). So this implies that investor expectations of the company have remained pretty steady. We don't think its coincidental that the share price is growing at a similar rate to the earnings per share.

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

We know that Shengyi TechnologyLtd has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Shengyi TechnologyLtd will grow revenue in the future.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Shengyi TechnologyLtd the TSR over the last 1 year was 41%, 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 Shengyi TechnologyLtd has rewarded shareholders with a total shareholder return of 41% in the last twelve months. That's including the dividend. That's better than the annualised return of 5% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Shengyi TechnologyLtd , and understanding them should be part of your investment process.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.