The 13% return this week takes Fameglow Holdings' (HKG:8603) shareholders three-year gains to 59%

By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, Fameglow Holdings Limited (HKG:8603) shareholders have seen the share price rise 59% over three years, well in excess of the market decline (13%, not including dividends).

Since the stock has added HK$56m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for Fameglow Holdings

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.

During three years of share price growth, Fameglow Holdings moved from a loss to profitability. That would generally be considered a positive, so we'd expect the share price to be up.

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

Dive deeper into Fameglow Holdings' key metrics by checking this interactive graph of Fameglow Holdings's earnings, revenue and cash flow.

A Different Perspective

Fameglow Holdings shareholders are down 19% for the year, but the market itself is up 26%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 Fameglow Holdings is showing 3 warning signs in our investment analysis , and 1 of those is concerning...

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.