Zhejiang Xianju PharmaceuticalLtd (SZSE:002332) jumps 3.4% this week, though earnings growth is still tracking behind five-year shareholder returns

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, the Zhejiang Xianju Pharmaceutical Co.,Ltd. (SZSE:002332) share price is up 78% in the last 5 years, clearly besting the market return of around 3.3% (ignoring dividends).

Since the stock has added CN¥396m 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 Xianju PharmaceuticalLtd

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 five years of share price growth, Zhejiang Xianju PharmaceuticalLtd achieved compound earnings per share (EPS) growth of 11% per year. So the EPS growth rate is rather close to the annualized share price gain of 12% per year. That suggests that the market sentiment around the company hasn't changed much over that time. 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).

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

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Zhejiang Xianju PharmaceuticalLtd the TSR over the last 5 years was 93%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While it's never nice to take a loss, Zhejiang Xianju PharmaceuticalLtd shareholders can take comfort that , including dividends,their trailing twelve month loss of 12% wasn't as bad as the market loss of around 14%. Longer term investors wouldn't be so upset, since they would have made 14%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand Zhejiang Xianju PharmaceuticalLtd better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Zhejiang Xianju PharmaceuticalLtd you should know about.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.

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