Shanxi Lanhua Sci-Tech VentureLtd's (SHSE:600123) five-year earnings growth trails the impressive shareholder returns

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Shanxi Lanhua Sci-Tech Venture Co.,Ltd (SHSE:600123) shareholders have enjoyed a 91% share price rise over the last half decade, well in excess of the market return of around 16% (not including dividends).

Since it's been a strong week for Shanxi Lanhua Sci-Tech VentureLtd shareholders, let's have a look at trend of the longer term fundamentals.

See our latest analysis for Shanxi Lanhua Sci-Tech VentureLtd

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over half a decade, Shanxi Lanhua Sci-Tech VentureLtd managed to grow its earnings per share at 3.9% a year. This EPS growth is lower than the 14% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

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

Dive deeper into Shanxi Lanhua Sci-Tech VentureLtd's key metrics by checking this interactive graph of Shanxi Lanhua Sci-Tech VentureLtd'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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Shanxi Lanhua Sci-Tech VentureLtd's TSR for the last 5 years was 145%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market gained around 12% in the last year, Shanxi Lanhua Sci-Tech VentureLtd shareholders lost 0.9% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 20% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. To that end, you should learn about the 2 warning signs we've spotted with Shanxi Lanhua Sci-Tech VentureLtd (including 1 which can't be ignored) .

But note: Shanxi Lanhua Sci-Tech VentureLtd may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.