Investors in COSCO SHIPPING Development (HKG:2866) have seen stellar returns of 119% over the past five years

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, long term COSCO SHIPPING Development Co., Ltd. (HKG:2866) shareholders have enjoyed a 46% share price rise over the last half decade, well in excess of the market return of around 17% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 33% in the last year, including dividends.

So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.

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There is no denying that markets are sometimes efficient, but prices do not always reflect 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.

Over half a decade, COSCO SHIPPING Development managed to grow its earnings per share at 4.3% a year. This EPS growth is slower than the share price growth of 8% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.

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

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

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. In the case of COSCO SHIPPING Development, it has a TSR of 119% for the last 5 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

COSCO SHIPPING Development provided a TSR of 33% over the last twelve months. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 17% per year over five year. This suggests the company might be improving over time. 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. Case in point: We've spotted 3 warning signs for COSCO SHIPPING Development you should be aware of, and 2 of them can't be ignored.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong 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.