For us, stock picking is in large part the hunt for the truly magnificent stocks. You won't get it right every time, but when you do, the returns can be truly splendid. One bright shining star stock has been Qingdao Huicheng Environmental Technology Group Co., Ltd. (SZSE:300779), which is 630% higher than three years ago. It's also good to see the share price up 74% over the last quarter. Anyone who held for that rewarding ride would probably be keen to talk about it.

The past week has proven to be lucrative for Qingdao Huicheng Environmental Technology Group investors, so let's see if fundamentals drove the company's three-year performance.

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Qingdao Huicheng Environmental Technology Group was able to grow its EPS at 32% per year over three years, sending the share price higher. This EPS growth is lower than the 94% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It's not unusual to see the market 're-rate' a stock, after a few years of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 375.77.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It is of course excellent to see how Qingdao Huicheng Environmental Technology Group has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for Qingdao Huicheng Environmental Technology Group the TSR over the last 3 years was 634%, 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 Qingdao Huicheng Environmental Technology Group shareholders have received a total shareholder return of 141% over one year. Of course, that includes the dividend. That's better than the annualised return of 36% over half a decade, implying that the company is doing better recently. 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 Qingdao Huicheng Environmental Technology Group better, we need to consider many other factors. Take risks, for example - Qingdao Huicheng Environmental Technology Group has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.