The total return for Jiangsu Nhwa Pharmaceutical (SZSE:002262) investors has risen faster than earnings growth over the last five years

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. One great example is Jiangsu Nhwa Pharmaceutical Co., LTD (SZSE:002262) which saw its share price drive 123% higher over five years. In the last week shares have slid back 4.1%.

While the stock has fallen 4.1% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

Check out our latest analysis for Jiangsu Nhwa Pharmaceutical

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 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 five years of share price growth, Jiangsu Nhwa Pharmaceutical achieved compound earnings per share (EPS) growth of 15% per year. This EPS growth is reasonably close to the 17% average annual increase in the share price. This indicates that investor sentiment towards the company has not changed a great deal. Indeed, it would appear the share price is reacting to the EPS.

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

We know that Jiangsu Nhwa Pharmaceutical has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

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. We note that for Jiangsu Nhwa Pharmaceutical the TSR over the last 5 years was 134%, 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

While the broader market lost about 9.1% in the twelve months, Jiangsu Nhwa Pharmaceutical shareholders did even worse, losing 25% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 19% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Is Jiangsu Nhwa Pharmaceutical cheap compared to other companies? These 3 valuation measures might help you decide.

We will like Jiangsu Nhwa Pharmaceutical better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.