Shanghai Kai Kai Industry (SHSE:600272) jumps 12% this week, though earnings growth is still tracking behind three-year shareholder returns

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, Shanghai Kai Kai Industry Company Limited (SHSE:600272) shareholders have seen the share price rise 90% over three years, well in excess of the market decline (18%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 12%, including dividends.

Since the stock has added CN¥352m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Shanghai Kai Kai Industry

There is no denying that markets are sometimes efficient, but prices do not always reflect 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).

During three years of share price growth, Shanghai Kai Kai Industry achieved compound earnings per share growth of 50% per year. The average annual share price increase of 24% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat. Having said that, the market is still optimistic, given the P/E ratio of 59.86.

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

Dive deeper into Shanghai Kai Kai Industry's key metrics by checking this interactive graph of Shanghai Kai Kai Industry's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Shanghai Kai Kai Industry, it has a TSR of 92% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Shanghai Kai Kai Industry provided a TSR of 12% over the year (including dividends). That's fairly close to the broader market return. It has to be noted that the recent return falls short of the 12% shareholders have gained each year, over half a decade. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes Shanghai Kai Kai Industry a stock worth watching. It's always interesting to track share price performance over the longer term. But to understand Shanghai Kai Kai Industry better, we need to consider many other factors. For example, we've discovered 1 warning sign for Shanghai Kai Kai Industry that you should be aware of before investing here.

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.