Despite the downward trend in earnings at Shandong Gold PhoenixLtd (SHSE:603586) the stock rallies 35%, bringing three-year gains to 31%

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. Just take a look at Shandong Gold Phoenix Co.,Ltd (SHSE:603586), which is up 22%, over three years, soundly beating the market decline of 29% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 1.2% in the last year, including dividends.

Since it's been a strong week for Shandong Gold PhoenixLtd shareholders, let's have a look at trend of the longer term fundamentals.

View our latest analysis for Shandong Gold PhoenixLtd

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. 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 the last three years, Shandong Gold PhoenixLtd failed to grow earnings per share, which fell 2.8% (annualized).

Based on these numbers, we think that the decline in earnings per share may not be a good representation of how the business has changed over the years. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

It may well be that Shandong Gold PhoenixLtd revenue growth rate of 9.8% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

Take a more thorough look at Shandong Gold PhoenixLtd's financial health with this free report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Shandong Gold PhoenixLtd's TSR for the last 3 years was 31%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Shandong Gold PhoenixLtd has rewarded shareholders with a total shareholder return of 1.2% in the last twelve months. Of course, that includes the dividend. However, the TSR over five years, coming in at 1.7% per year, is even more impressive. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Shandong Gold PhoenixLtd (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

We will like Shandong Gold PhoenixLtd 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com