The total return for Sichuan Changhong ElectricLtd (SHSE:600839) investors has risen faster than earnings growth over the last three years

It's been a soft week for Sichuan Changhong Electric Co.,Ltd. (SHSE:600839) shares, which are down 14%. But that doesn't change the fact that the returns over the last three years have been very strong. In fact, the share price is up a full 264% compared to three years ago. It's not uncommon to see a share price retrace a bit, after a big gain. Only time will tell if there is still too much optimism currently reflected in the share price.

While the stock has fallen 14% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

View our latest analysis for Sichuan Changhong ElectricLtd

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

During three years of share price growth, Sichuan Changhong ElectricLtd achieved compound earnings per share growth of 17% per year. In comparison, the 54% per year gain in the share price outpaces the EPS growth. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It is quite common to see investors become enamoured with a business, after a few years of solid progress. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 91.91.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Sichuan Changhong ElectricLtd's key metrics by checking this interactive graph of Sichuan Changhong ElectricLtd's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Sichuan Changhong ElectricLtd's TSR for the last 3 years was 273%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Sichuan Changhong ElectricLtd has rewarded shareholders with a total shareholder return of 92% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 29%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Even so, be aware that Sichuan Changhong ElectricLtd is showing 3 warning signs in our investment analysis , you should know about...

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.