Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Guolian Securities Co., Ltd. (HKG:1456) shareholders have enjoyed a 19% share price rise over the last half decade, well in excess of the market decline of around 24% (not including dividends).

Since it's been a strong week for Guolian Securities shareholders, let's have a look at trend of the longer term fundamentals.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 half a decade, Guolian Securities managed to grow its earnings per share at 30% a year. This EPS growth is higher than the 4% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 10.97.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

This free interactive report on Guolian Securities' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Guolian Securities' total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Guolian Securities' TSR of 30% for the 5 years exceeded its share price return, because it has paid dividends.

A Different Perspective

Guolian Securities shareholders are down 8.9% over twelve months, which isn't far from the market return of -8.3%. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. If the fundamental data remains strong, and the share price is simply down on sentiment, then this could be an opportunity worth investigating. Before forming an opinion on Guolian Securities you might want to consider these 3 valuation metrics.

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 Hong Kong 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.