Earnings growth outpaced the 24% return delivered to Shanghai New World (SHSE:600628) shareholders over the last year

If you want to compound wealth in the stock market, you can do so by buying an index fund. But investors can boost returns by picking market-beating companies to own shares in. For example, the Shanghai New World Co., Ltd (SHSE:600628) share price is up 24% in the last 1 year, clearly besting the market return of around 2.0% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! The longer term returns are positive, with the share price up 23% in three years.

The past week has proven to be lucrative for Shanghai New World investors, so let's see if fundamentals drove the company's one-year performance.

See our latest analysis for Shanghai New World

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.

Shanghai New World was able to grow EPS by 46% in the last twelve months. It's fair to say that the share price gain of 24% did not keep pace with the EPS growth. Therefore, it seems the market isn't as excited about Shanghai New World as it was before. This could be an opportunity. Of course, with a P/E ratio of 129.42, the market remains optimistic.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Different Perspective

It's good to see that Shanghai New World has rewarded shareholders with a total shareholder return of 24% in the last twelve months. And that does include the dividend. Notably the five-year annualised TSR loss of 0.7% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for Shanghai New World (1 is concerning!) that you should be aware of before investing here.

Of course Shanghai New World may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.