Despite the downward trend in earnings at China National Accord Medicines (SZSE:000028) the stock increases 4.5%, bringing three-year gains to 21%

One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, China National Accord Medicines Corporation Ltd. (SZSE:000028) shareholders have seen the share price rise 15% over three years, well in excess of the market decline (17%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 8.6%, including dividends.

The past week has proven to be lucrative for China National Accord Medicines investors, so let's see if fundamentals drove the company's three-year performance.

Check out our latest analysis for China National Accord Medicines

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

Over the last three years, China National Accord Medicines failed to grow earnings per share, which fell 0.09% (annualized).

With EPS falling, but a modestly increasing share price, it seems that the market was probably too pessimistic about the stock in the past. Ultimately, though, we don't think it can maintain share price gains without turning around the EPS growth.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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. As it happens, China National Accord Medicines' TSR for the last 3 years was 21%, 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

China National Accord Medicines provided a TSR of 8.6% over the last twelve months. But that return falls short of the market. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 0.5% endured over half a decade. So this might be a sign the business has turned its fortunes around. It's always interesting to track share price performance over the longer term. But to understand China National Accord Medicines better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for China National Accord Medicines you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.