By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, China Resources Pharmaceutical Group Limited (HKG:3320) shareholders have seen the share price rise 55% over three years, well in excess of the market decline (13%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 21% in the last year, including dividends.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

China Resources Pharmaceutical Group was able to grow its EPS at 13% per year over three years, sending the share price higher. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 16% average annual increase in the share price. This suggests that sentiment and expectations have not changed drastically. Au contraire, the share price change has arguably mimicked the EPS growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that China Resources Pharmaceutical Group has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for China Resources Pharmaceutical Group the TSR over the last 3 years was 72%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

China Resources Pharmaceutical Group's TSR for the year was broadly in line with the market average, at 21%. The silver lining is that the share price is up in the short term, which flies in the face of the annualised loss of 1.6% over the last five years. While 'turnarounds seldom turn' there are green shoots for China Resources Pharmaceutical Group. It's always interesting to track share price performance over the longer term. But to understand China Resources Pharmaceutical Group better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for China Resources Pharmaceutical Group you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.