Shanghai Pharmaceuticals Holding (SHSE:601607) shareholders notch a 6.1% CAGR over 5 years, yet earnings have been shrinking

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you'd generally like to see the share price rise faster than the market. But Shanghai Pharmaceuticals Holding Co., Ltd (SHSE:601607) has fallen short of that second goal, with a share price rise of 18% over five years, which is below the market return. Zooming in, the stock is up a respectable 18% in the last year.

Since it's been a strong week for Shanghai Pharmaceuticals Holding shareholders, let's have a look at trend of the longer term fundamentals.

See our latest analysis for Shanghai Pharmaceuticals Holding

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

During five years of share price growth, Shanghai Pharmaceuticals Holding actually saw its EPS drop 4.6% per year.

With EPS falling, but a modestly increasing share price, it seems that the market was probably too pessimistic about the stock in the past. In the long term, though, it will be hard for the share price rises to continue without improving EPS.

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

This free interactive report on Shanghai Pharmaceuticals Holding's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Shanghai Pharmaceuticals Holding, it has a TSR of 34% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's nice to see that Shanghai Pharmaceuticals Holding shareholders have received a total shareholder return of 21% over the last year. That's including the dividend. That's better than the annualised return of 6% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Shanghai Pharmaceuticals Holding , and understanding them should be part of your investment process.

We will like Shanghai Pharmaceuticals Holding better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.