Investors in Shanxi Xinghuacun Fen Wine FactoryLtd (SHSE:600809) have seen fantastic returns of 321% over the past five years

It hasn't been the best quarter for Shanxi Xinghuacun Fen Wine Factory Co.,Ltd. (SHSE:600809) shareholders, since the share price has fallen 21% in that time. But that scarcely detracts from the really solid long term returns generated by the company over five years. We think most investors would be happy with the 296% return, over that period. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. The more important question is whether the stock is too cheap or too expensive today. While the returns over the last 5 years have been good, we do feel sorry for those shareholders who haven't held shares that long, because the share price is down 38% in the last three years.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

View our latest analysis for Shanxi Xinghuacun Fen Wine FactoryLtd

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...' 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 five years of share price growth, Shanxi Xinghuacun Fen Wine FactoryLtd achieved compound earnings per share (EPS) growth of 48% per year. This EPS growth is higher than the 32% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It is of course excellent to see how Shanxi Xinghuacun Fen Wine FactoryLtd has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Shanxi Xinghuacun Fen Wine FactoryLtd stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Shanxi Xinghuacun Fen Wine FactoryLtd the TSR over the last 5 years was 321%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While it's never nice to take a loss, Shanxi Xinghuacun Fen Wine FactoryLtd shareholders can take comfort that , including dividends,their trailing twelve month loss of 3.8% wasn't as bad as the market loss of around 15%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 33% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Shanxi Xinghuacun Fen Wine FactoryLtd , and understanding them should be part of your investment process.

But note: Shanxi Xinghuacun Fen Wine FactoryLtd 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com