Investors more bullish on Shanghai Huili Building Materials (SHSE:900939) this week as stock swells 13%, despite earnings trending downwards over past year

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But investors can boost returns by picking market-beating companies to own shares in. To wit, the Shanghai Huili Building Materials Co., Ltd. (SHSE:900939) share price is 56% higher than it was a year ago, much better than the market return of around 9.7% (not including dividends) in the same period. That's a solid performance by our standards! Zooming out, the stock is actually down 15% in the last three years.

Since it's been a strong week for Shanghai Huili Building Materials shareholders, let's have a look at trend of the longer term fundamentals.

See our latest analysis for Shanghai Huili Building Materials

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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 the last year, Shanghai Huili Building Materials actually saw its earnings per share drop 26%.

This means it's unlikely the market is judging the company based on earnings growth. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.

Revenue was pretty stable on last year, so deeper research might be needed to explain the share price rise.

The company's revenue and earnings (over time) are 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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

It's nice to see that Shanghai Huili Building Materials shareholders have received a total shareholder return of 56% over the last year. There's no doubt those recent returns are much better than the TSR loss of 3% per year over five years. 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. Even so, be aware that Shanghai Huili Building Materials is showing 3 warning signs in our investment analysis , and 1 of those can't be ignored...

But note: Shanghai Huili Building Materials 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.