The five-year returns for Shanghai Fullhan Microelectronics' (SZSE:300613) shareholders have been favorable, yet its earnings growth was even better

When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. To wit, the Shanghai Fullhan Microelectronics share price has climbed 70% in five years, easily topping the market return of 2.2% (ignoring dividends).

Since the stock has added CN¥988m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Shanghai Fullhan Microelectronics

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

During five years of share price growth, Shanghai Fullhan Microelectronics achieved compound earnings per share (EPS) growth of 77% per year. The EPS growth is more impressive than the yearly share price gain of 11% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.

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

We know that Shanghai Fullhan Microelectronics has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Shanghai Fullhan Microelectronics stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

We regret to report that Shanghai Fullhan Microelectronics shareholders are down 42% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 17%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 11% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Shanghai Fullhan Microelectronics better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Shanghai Fullhan Microelectronics , and understanding them should be part of your investment process.

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