By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at The People's Insurance Company (Group) of China Limited (HKG:1339), which is up 12%, over three years, soundly beating the market decline of 23% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 12%, including dividends.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the three years of share price growth, People's Insurance Company (Group) of China actually saw its earnings per share (EPS) drop 4.1% per year.

While EPS is down but the share price is moving up, neither move is particularly drastic, suggesting the market was previously too pessimistic. Still, if EPS declines indefinitely, the share price will likely follow (especially if the company makes a loss).

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on People's Insurance Company (Group) of China's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for People's Insurance Company (Group) of China the TSR over the last 3 years was 37%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that People's Insurance Company (Group) of China shareholders have received a total shareholder return of 12% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 5%. 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 People's Insurance Company (Group) of China better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for People's Insurance Company (Group) of China 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 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.