CSPC Innovation Pharmaceutical's (SZSE:300765) three-year total shareholder returns outpace the underlying earnings growth

Investing can be hard but the potential fo an individual stock to pay off big time inspires us. You won't get it right every time, but when you do, the returns can be truly splendid. For example, the CSPC Innovation Pharmaceutical Co., Ltd. (SZSE:300765) share price is up a whopping 352% in the last three years, a handsome return for long term holders. Also pleasing for shareholders was the 15% gain in the last three months.

Although CSPC Innovation Pharmaceutical has shed CN¥1.8b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

View our latest analysis for CSPC Innovation Pharmaceutical

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

CSPC Innovation Pharmaceutical was able to grow its EPS at 24% per year over three years, sending the share price higher. In comparison, the 65% per year gain in the share price outpaces the EPS growth. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It's not unusual to see the market 're-rate' a stock, after a few years of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 61.14.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on CSPC Innovation Pharmaceutical's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of CSPC Innovation Pharmaceutical, it has a TSR of 364% 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

It's good to see that CSPC Innovation Pharmaceutical has rewarded shareholders with a total shareholder return of 170% in the last twelve months. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 36% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand CSPC Innovation Pharmaceutical better, we need to consider many other factors. For example, we've discovered 2 warning signs for CSPC Innovation Pharmaceutical (1 is a bit concerning!) that you should be aware of before investing here.

But note: CSPC Innovation Pharmaceutical may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.