China Life Insurance's (HKG:2628) investors will be pleased with their splendid 151% return over the last three years

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. To wit, the China Life Insurance Company Limited (HKG:2628) share price has flown 122% in the last three years. How nice for those who held the stock! On top of that, the share price is up 19% in about a quarter. But this could be related to the strong market, which is up 9.6% in the last three months.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

China Life Insurance was able to grow its EPS at 46% per year over three years, sending the share price higher. This EPS growth is higher than the 30% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. We'd venture the lowish P/E ratio of 5.16 also reflects the negative sentiment around the stock.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that China Life Insurance has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on China Life Insurance's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, China Life Insurance's TSR for the last 3 years was 151%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

China Life Insurance shareholders are up 11% for the year (even including dividends). But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 9% over half a decade This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand China Life Insurance better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for China Life Insurance you should be aware of, and 1 of them is potentially serious.

Of course China Life Insurance 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 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.