The one-year decline in earnings for Central China Securities HKG:1375) isn't encouraging, but shareholders are still up 63% over that period

If you want to compound wealth in the stock market, you can do so by buying an index fund. But you can significantly boost your returns by picking above-average stocks. For example, the Central China Securities Co., Ltd. (HKG:1375) share price is up 59% in the last 1 year, clearly besting the market return of around 22% (not including dividends). So that should have shareholders smiling. Having said that, the longer term returns aren't so impressive, with stock gaining just 23% in three years.

While the stock has fallen 5.5% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

View our latest analysis for Central China Securities

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over the last twelve months, Central China Securities actually shrank its EPS by 27%.

Given the share price gain, we doubt the market is measuring progress with EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.

We doubt the modest 0.7% dividend yield is doing much to support the share price. Unfortunately Central China Securities' fell 14% over twelve months. So the fundamental metrics don't provide an obvious explanation for the share price gain.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

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. It might be well worthwhile taking a look at our free report on Central China Securities' earnings, revenue and cash flow.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Central China Securities' TSR for the last 1 year was 63%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Central China Securities has rewarded shareholders with a total shareholder return of 63% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 0.2% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Central China Securities is showing 1 warning sign in our investment analysis , you should know about...

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.