Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, the Shenzhen Salubris Pharmaceuticals Co., Ltd. (SZSE:002294) share price is up 31% in the last 5 years, clearly besting the market decline of around 1.7% (ignoring dividends).

So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Shenzhen Salubris Pharmaceuticals' earnings per share are down 17% per year, despite strong share price performance over five years.

Essentially, it doesn't seem likely that investors are focused on EPS. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.

We doubt the modest 1.8% dividend yield is attracting many buyers to the stock. It is not great to see that revenue has dropped by 6.1% per year over five years. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.

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

It is of course excellent to see how Shenzhen Salubris Pharmaceuticals has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Shenzhen Salubris Pharmaceuticals 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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Shenzhen Salubris Pharmaceuticals' TSR for the last 5 years was 41%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While it's never nice to take a loss, Shenzhen Salubris Pharmaceuticals shareholders can take comfort that , including dividends,their trailing twelve month loss of 14% wasn't as bad as the market loss of around 19%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 7% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Shenzhen Salubris Pharmaceuticals has 1 warning sign we think you should be aware of.

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.

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