Earnings growth outpaced the solid 126% return delivered to Guotai Junan International Holdings (HKG:1788) shareholders over the last year

Unless you borrow money to invest, the potential losses are limited. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Guotai Junan International Holdings Limited (HKG:1788) share price had more than doubled in just one year - up 118%. Better yet, the share price has risen 7.9% in the last week. Unfortunately the longer term returns are not so good, with the stock falling 4.4% in the last three years.

Since the stock has added HK$763m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Guotai Junan International 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 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).

Guotai Junan International Holdings boasted truly magnificent EPS growth in the last year. We don't think the exact number is a good guide to the sustainable growth rate, but we do think this sort of increase is impressive. So we'd expect to see the share price higher. To us, inflection points like this are the best time to take a close look at a stock.

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

We know that Guotai Junan International Holdings has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Guotai Junan International Holdings will grow revenue in the future.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. We note that for Guotai Junan International Holdings the TSR over the last 1 year was 126%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Guotai Junan International Holdings shareholders have received a total shareholder return of 126% over the last year. And that does include the dividend. That's better than the annualised return of 0.5% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Guotai Junan International Holdings , 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 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.