Those who invested in Zhejiang Sanmei Chemical IndustryLtd (SHSE:603379) three years ago are up 91%

By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Zhejiang Sanmei Chemical Industry Co.,Ltd. (SHSE:603379) share price is up 86% in the last three years, clearly besting the market decline of around 17% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 11% in the last year, including dividends.

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 Zhejiang Sanmei Chemical IndustryLtd

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.

Zhejiang Sanmei Chemical IndustryLtd was able to grow its EPS at 34% per year over three years, sending the share price higher. The average annual share price increase of 23% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time.

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

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on Zhejiang Sanmei Chemical IndustryLtd'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. 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, Zhejiang Sanmei Chemical IndustryLtd's TSR for the last 3 years was 91%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Zhejiang Sanmei Chemical IndustryLtd provided a TSR of 11% over the last twelve months. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 14% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand Zhejiang Sanmei Chemical IndustryLtd better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Zhejiang Sanmei Chemical IndustryLtd you should be aware of.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are 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.