Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, the Shandong Shuangyi Technology Co., Ltd. (SZSE:300690) share price is up 52% in the last 5 years, clearly besting the market return of around 22% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 31% in the last year, including dividends.

While the stock has fallen 8.6% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

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.

During five years of share price growth, Shandong Shuangyi Technology actually saw its EPS drop 11% per year.

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.

The modest 0.9% dividend yield is unlikely to be propping up the share price. It is not great to see that revenue has dropped by 5.4% per year over five years. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Take a more thorough look at Shandong Shuangyi Technology's financial health with this free 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 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. In the case of Shandong Shuangyi Technology, it has a TSR of 67% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Shandong Shuangyi Technology has rewarded shareholders with a total shareholder return of 31% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 11%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Shandong Shuangyi Technology better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Shandong Shuangyi Technology , and understanding them should be part of your investment process.

We will like Shandong Shuangyi Technology 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.