The total return for Shandong Mining Machinery Group (SZSE:002526) investors has risen faster than earnings growth over the last three years

One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. Just take a look at Shandong Mining Machinery Group Co., Ltd. (SZSE:002526), which is up 49%, over three years, soundly beating the market decline of 24% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 31% in the last year.

In light of the stock dropping 9.2% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.

See our latest analysis for Shandong Mining Machinery Group

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 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.

Shandong Mining Machinery Group was able to grow its EPS at 22% per year over three years, sending the share price higher. The average annual share price increase of 14% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Dive deeper into Shandong Mining Machinery Group's key metrics by checking this interactive graph of Shandong Mining Machinery Group's earnings, revenue and cash flow.

A Different Perspective

It's good to see that Shandong Mining Machinery Group has rewarded shareholders with a total shareholder return of 31% in the last twelve months. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 5% per year), it would seem that the stock's performance has improved in recent times. 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 Shandong Mining Machinery Group better, we need to consider many other factors. To that end, you should learn about the 3 warning signs we've spotted with Shandong Mining Machinery Group (including 2 which are significant) .

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are 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.