By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, China National Chemical Engineering Co., Ltd (SHSE:601117) shareholders have seen the share price rise 45% over three years, well in excess of the market decline (12%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 6.6% , including dividends .

The past week has proven to be lucrative for China National Chemical Engineering investors, so let's see if fundamentals drove the company's three-year performance.

View our latest analysis for China National Chemical Engineering

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During three years of share price growth, China National Chemical Engineering achieved compound earnings per share growth of 17% per year. This EPS growth is higher than the 13% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat. We'd venture the lowish P/E ratio of 8.60 also reflects the negative sentiment around the stock.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

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. This free interactive report on China National Chemical Engineering'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. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for China National Chemical Engineering the TSR over the last 3 years was 56%, 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

We're pleased to report that China National Chemical Engineering shareholders have received a total shareholder return of 6.6% over one year. And that does include the dividend. However, the TSR over five years, coming in at 9% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. It's always interesting to track share price performance over the longer term. But to understand China National Chemical Engineering better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with China National Chemical Engineering .

If you are like me, then you will not want to miss this free list of growing companies 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.