The three-year decline in earnings for China State Construction Engineering SHSE:601668) isn't encouraging, but shareholders are still up 47% over that period

By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, China State Construction Engineering Corporation Limited (SHSE:601668) shareholders have seen the share price rise 27% over three years, well in excess of the market decline (18%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 25%, including dividends.

Since the long term performance has been good but there's been a recent pullback of 4.0%, let's check if the fundamentals match the share price.

See our latest analysis for China State Construction Engineering

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Over the last three years, China State Construction Engineering failed to grow earnings per share, which fell 1.4% (annualized).

Given the share price resilience, we don't think the (declining) EPS numbers are a good measure of how the business is moving forward, right now. So other metrics may hold the key to understanding what is influencing investors.

We note that the dividend is higher than it was preciously, so that may have assisted the share price. Sometimes yield-chasing investors will flock to a company if they think the dividend can grow over time. The revenue growth of about 6.6% per year might also encourage buyers.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

China State Construction Engineering is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think China State Construction Engineering will earn in the future (free analyst consensus estimates)

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of China State Construction Engineering, it has a TSR of 47% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that China State Construction Engineering shareholders have received a total shareholder return of 25% over one year. Of course, that includes the dividend. That's better than the annualised return of 8% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand China State Construction Engineering better, we need to consider many other factors. For instance, we've identified 2 warning signs for China State Construction Engineering (1 is potentially serious) that you should be aware of.

We will like China State Construction Engineering 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.