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, Shandong Mining Machinery Group Co., Ltd. (SZSE:002526) shareholders have seen the share price rise 31% over three years, well in excess of the market decline (16%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 15%.

Since it's been a strong week for Shandong Mining Machinery Group shareholders, let's have a look at trend of the longer term fundamentals.

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. 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.

Over the last three years, Shandong Mining Machinery Group failed to grow earnings per share, which fell 4.9% (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 Shandong Mining Machinery Group at the moment. Therefore, it makes sense to look into other metrics.

It may well be that Shandong Mining Machinery Group revenue growth rate of 7.3% over three years has convinced shareholders to believe in a brighter future. 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).

This free interactive report on Shandong Mining Machinery Group's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

We're pleased to report that Shandong Mining Machinery Group shareholders have received a total shareholder return of 15% over one year. That certainly beats the loss of about 0.4% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It's always interesting to track share price performance over the longer term. But to understand Shandong Mining Machinery Group better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Shandong Mining Machinery Group you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.