By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Langfang Development Co., Ltd. (SHSE:600149) share price is up 43% in the last three years, clearly besting the market decline of around 18% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 5.7%.
The past week has proven to be lucrative for Langfang Development investors, so let's see if fundamentals drove the company's three-year performance.
Check out our latest analysis for Langfang Development
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 the three years of share price growth, Langfang Development actually saw its earnings per share (EPS) drop 111% per year.
This means it's unlikely the market is judging the company based on earnings growth. Therefore, we think it's worth considering other metrics as well.
It could be that the revenue growth of 5.7% per year is viewed as evidence that Langfang Development is growing. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
If you are thinking of buying or selling Langfang Development stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
It's nice to see that Langfang Development shareholders have received a total shareholder return of 5.7% over the last year. Having said that, the five-year TSR of 6% a year, is even better. 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. Case in point: We've spotted 1 warning sign for Langfang Development you should be aware of.
But note: Langfang Development may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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.
