Despite lower earnings than five years ago, Baoshan Iron & Steel (SHSE:600019) investors are up 71% since then

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, the Baoshan Iron & Steel Co., Ltd. (SHSE:600019) share price is up 26% in the last 5 years, clearly besting the market return of around 7.3% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 12%, including dividends.

Although Baoshan Iron & Steel has shed CN¥6.3b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for Baoshan Iron & Steel

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Baoshan Iron & Steel's earnings per share are down 7.8% per year, despite strong share price performance over five years.

Since the EPS are down strongly, it seems highly unlikely market participants are looking at EPS to value the company. Given that EPS is down, but the share price is up, it seems clear the market is focussed on other aspects of the business, at the moment.

We note that the dividend has not increased, so that doesn't seem to explain the increase, either. But it's reasonably likely that the 4.4% annual compound revenue growth is considered evidence that Baoshan Iron & Steel has plenty of growth ahead of it. In that case, the company may be sacrificing current earnings per share to drive growth.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

Baoshan Iron & Steel is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Baoshan Iron & Steel in this interactive graph of future profit estimates.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. In the case of Baoshan Iron & Steel, it has a TSR of 71% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Baoshan Iron & Steel provided a TSR of 12% over the last twelve months. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 11% over half a decade It is possible that returns will improve along with the business fundamentals. 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. Even so, be aware that Baoshan Iron & Steel is showing 1 warning sign in our investment analysis , you should know about...

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.