Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Zhuhai Huajin Capital Co., Ltd. (SZSE:000532) shareholders have enjoyed a 32% share price rise over the last half decade, well in excess of the market return of around 2.8% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 15% in the last year, including dividends.

The past week has proven to be lucrative for Zhuhai Huajin Capital investors, so let's see if fundamentals drove the company's five-year performance.

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Over half a decade, Zhuhai Huajin Capital managed to grow its earnings per share at 7.5% a year. The EPS growth is more impressive than the yearly share price gain of 6% over the same period. So one could conclude that the broader market has become more cautious towards the stock. Of course, with a P/E ratio of 52.54, the market remains optimistic.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Zhuhai Huajin Capital the TSR over the last 5 years was 35%, 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

We're pleased to report that Zhuhai Huajin Capital shareholders have received a total shareholder return of 15% over one year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 6%. 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Zhuhai Huajin Capital you should know about.

Of course Zhuhai Huajin Capital may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.