Zhejiang Medicine's (SHSE:600216) 11% YoY earnings expansion surpassed the shareholder returns over the past five years

Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. To wit, the Zhejiang Medicine share price has climbed 35% in five years, easily topping the market return of 3.3% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 27% in the last year, including dividends.

Since the stock has added CN¥1.4b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Zhejiang Medicine

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Over half a decade, Zhejiang Medicine managed to grow its earnings per share at 68% a year. The EPS growth is more impressive than the yearly share price gain of 6% over the same period. So one could conclude that the broader market has become more cautious towards the stock.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Dive deeper into Zhejiang Medicine's key metrics by checking this interactive graph of Zhejiang Medicine'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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Zhejiang Medicine's TSR for the last 5 years was 52%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Zhejiang Medicine has rewarded shareholders with a total shareholder return of 27% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 9% over half a decade, implying that the company is doing better recently. 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 Zhejiang Medicine better, we need to consider many other factors. Even so, be aware that Zhejiang Medicine is showing 2 warning signs in our investment analysis , you should know about...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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