Shanghai No.1 PharmacyLtd's (SHSE:600833) three-year earnings growth trails the favorable shareholder returns

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. Just take a look at Shanghai No.1 Pharmacy Co.,Ltd. (SHSE:600833), which is up 44%, over three years, soundly beating the market decline of 25% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 10% in the last year, including dividends.

Since the stock has added CN¥352m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Shanghai No.1 PharmacyLtd

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During three years of share price growth, Shanghai No.1 PharmacyLtd achieved compound earnings per share growth of 41% per year. This EPS growth is higher than the 13% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

Dive deeper into Shanghai No.1 PharmacyLtd's key metrics by checking this interactive graph of Shanghai No.1 PharmacyLtd's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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, Shanghai No.1 PharmacyLtd's TSR for the last 3 years was 49%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Shanghai No.1 PharmacyLtd has rewarded shareholders with a total shareholder return of 10% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 6%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Take risks, for example - Shanghai No.1 PharmacyLtd has 2 warning signs (and 1 which can't be ignored) we think you should know about.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.