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. Just take a look at China Railway Construction Corporation Limited (SHSE:601186), which is up 30%, over three years, soundly beating the market decline of 15% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 24%, including dividends.

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

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 the last three years, China Railway Construction failed to grow earnings per share, which fell 4.4% (annualized).

Companies are not always focussed on EPS growth in the short term, and looking at how the share price has reacted, we don't think EPS is the most important metric for China Railway Construction at the moment. So other metrics may hold the key to understanding what is influencing investors.

We severely doubt anyone is particularly impressed with the modest 3.0% three-year revenue growth rate. While we don't have an obvious theory to explain the share price rise, a closer look at the data might be enlightening.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

China Railway Construction is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling China Railway Construction stock, you should check out this free report showing analyst consensus estimates for future profits.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 China Railway Construction, it has a TSR of 44% 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 China Railway Construction shareholders have received a total shareholder return of 24% over one year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 3% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Take risks, for example - China Railway Construction has 2 warning signs (and 1 which is potentially serious) we think you should know about.

Of course China Railway Construction 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.