Did You Miss Zhongzhi Pharmaceutical Holdings' (HKG:3737) 31% Share Price Gain?

If you want to compound wealth in the stock market, you can do so by buying an index fund. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Zhongzhi Pharmaceutical Holdings Limited (HKG:3737) share price is up 31% in the last year, clearly besting the market return of around 11% (not including dividends). That's a solid performance by our standards! Having said that, the longer term returns aren't so impressive, with stock gaining just 2.4% in three years.

Check out our latest analysis for Zhongzhi Pharmaceutical Holdings

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

During the last year Zhongzhi Pharmaceutical Holdings grew its earnings per share (EPS) by 31%. This EPS growth is remarkably close to the 31% increase in the share price. So this implies that investor expectations of the company have remained pretty steady. It makes intuitive sense that the share price and EPS would grow at similar rates.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

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

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Zhongzhi Pharmaceutical Holdings' TSR for the last year was 40%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Zhongzhi Pharmaceutical Holdings shareholders have received a total shareholder return of 40% over the last year. And that does include the dividend. Notably the five-year annualised TSR loss of 1.9% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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. For example, we've discovered 1 warning sign for Zhongzhi Pharmaceutical Holdings that you should be aware of before investing here.

Of course Zhongzhi Pharmaceutical Holdings may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

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This article by Simply Wall St is general in nature. 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.
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