Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, the Guangzhou Hengyun Enterprises Holding Ltd (SZSE:000531) share price is up 69% in the last 5 years, clearly besting the market return of around 32% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 9.9% in the last year , including dividends .

Since the stock has added CN¥460m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Guangzhou Hengyun Enterprises Holding

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Guangzhou Hengyun Enterprises Holding actually saw its EPS drop 20% per year.

This means it's unlikely the market is judging the company based on earnings growth. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.

We doubt the modest 1.0% dividend yield is attracting many buyers to the stock. On the other hand, Guangzhou Hengyun Enterprises Holding's revenue is growing nicely, at a compound rate of 6.9% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

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

If you are thinking of buying or selling Guangzhou Hengyun Enterprises Holding stock, you should check out this FREE detailed report on its balance sheet.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Guangzhou Hengyun Enterprises Holding's TSR for the last 5 years was 87%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Guangzhou Hengyun Enterprises Holding shareholders have received a total shareholder return of 9.9% over the last year. And that does include the dividend. Having said that, the five-year TSR of 13% a year, is even better. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Guangzhou Hengyun Enterprises Holding you should know about.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.