Dalian BIO-CHEM's (SHSE:603360) earnings growth rate lags the 21% CAGR delivered to shareholders

One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Dalian BIO-CHEM Company Limited (SHSE:603360) shareholders have seen the share price rise 62% over three years, well in excess of the market decline (29%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 43%, including dividends.

Since the long term performance has been good but there's been a recent pullback of 9.2%, let's check if the fundamentals match the share price.

See our latest analysis for Dalian BIO-CHEM

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 three years of share price growth, Dalian BIO-CHEM achieved compound earnings per share growth of 26% per year. This EPS growth is higher than the 17% average annual increase in the share price. So it seems investors have become more cautious about the company, over time.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It might be well worthwhile taking a look at our free report on Dalian BIO-CHEM'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. 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 Dalian BIO-CHEM the TSR over the last 3 years was 77%, 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

We're pleased to report that Dalian BIO-CHEM shareholders have received a total shareholder return of 43% over one year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 1.2% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Dalian BIO-CHEM better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Dalian BIO-CHEM .

But note: Dalian BIO-CHEM 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