Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Nanjing Iron & Steel Co., Ltd. (SHSE:600282) share price is up 50% in the last 5 years, clearly besting the market return of around 3.2% (ignoring dividends).

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).

During five years of share price growth, Nanjing Iron & Steel actually saw its EPS drop 16% per year.

This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

There's no sign of growing dividends, which might have explained the resilient share price. But it's reasonably likely that the 11% annual compound revenue growth is considered evidence that Nanjing Iron & Steel has plenty of growth ahead of it. Indeed, revenue growth, rather than EPS, might be the current focus of the business.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We know that Nanjing Iron & Steel has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Nanjing Iron & Steel

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of Nanjing Iron & Steel, it has a TSR of 115% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Nanjing Iron & Steel has rewarded shareholders with a total shareholder return of 51% in the last twelve months. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 17%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Nanjing Iron & Steel better, we need to consider many other factors. Even so, be aware that Nanjing Iron & Steel is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.

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