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, the Hunan Fangsheng Pharmaceutical Co., Ltd. (SHSE:603998) share price is up 97% in the last three years, clearly besting the market decline of around 30% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 11%, including dividends.

The past week has proven to be lucrative for Hunan Fangsheng Pharmaceutical investors, so let's see if fundamentals drove the company's three-year performance.

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).

Hunan Fangsheng Pharmaceutical was able to grow its EPS at 40% per year over three years, sending the share price higher. The average annual share price increase of 25% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Hunan Fangsheng Pharmaceutical has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Hunan Fangsheng Pharmaceutical stock, you should check out this FREE detailed report on its balance sheet.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Hunan Fangsheng Pharmaceutical the TSR over the last 3 years was 115%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Hunan Fangsheng Pharmaceutical shareholders have received a total shareholder return of 11% over one year. Of course, that includes the dividend. Having said that, the five-year TSR of 13% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand Hunan Fangsheng Pharmaceutical better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Hunan Fangsheng Pharmaceutical you should be aware of.

We will like Hunan Fangsheng Pharmaceutical better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.

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