Hunan Jiudian Pharmaceutical's (SZSE:300705) five-year earnings growth trails the fantastic shareholder returns

Long term investing can be life changing when you buy and hold the truly great businesses. While the best companies are hard to find, but they can generate massive returns over long periods. To wit, the Hunan Jiudian Pharmaceutical Co., Ltd. (SZSE:300705) share price has soared 362% over five years. And this is just one example of the epic gains achieved by some long term investors. Better yet, the share price has risen 3.9% in the last week.

The past week has proven to be lucrative for Hunan Jiudian Pharmaceutical investors, so let's see if fundamentals drove the company's five-year performance.

View our latest analysis for Hunan Jiudian Pharmaceutical

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Hunan Jiudian Pharmaceutical managed to grow its earnings per share at 43% a year. This EPS growth is reasonably close to the 36% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Rather, the share price has approximately tracked EPS growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It is of course excellent to see how Hunan Jiudian Pharmaceutical has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Hunan Jiudian Pharmaceutical the TSR over the last 5 years was 378%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Hunan Jiudian Pharmaceutical has rewarded shareholders with a total shareholder return of 47% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 37% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. To that end, you should be aware of the 1 warning sign we've spotted with Hunan Jiudian Pharmaceutical .

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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