By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Sichuan Kelun Pharmaceutical Co., Ltd. (SZSE:002422), which is up 64%, over three years, soundly beating the market decline of 26% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 12%, including dividends.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Sichuan Kelun Pharmaceutical was able to grow its EPS at 37% per year over three years, sending the share price higher. The average annual share price increase of 18% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Sichuan Kelun Pharmaceutical has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Sichuan Kelun Pharmaceutical stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Sichuan Kelun Pharmaceutical's TSR for the last 3 years was 79%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We're pleased to report that Sichuan Kelun Pharmaceutical shareholders have received a total shareholder return of 12% over one year. And that does include the dividend. That's better than the annualised return of 6% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Sichuan Kelun Pharmaceutical better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Sichuan Kelun Pharmaceutical you should know about.
For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.
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.