Hotai Finance's (TWSE:6592) investors will be pleased with their respectable 63% return over the last three years

One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. For example, the Hotai Finance Co., Ltd. (TWSE:6592) share price is up 47% in the last three years, clearly besting the market return of around 19% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 0.6% , including dividends .

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

View our latest analysis for Hotai Finance

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

During three years of share price growth, Hotai Finance achieved compound earnings per share growth of 6.2% per year. In comparison, the 14% per year gain in the share price outpaces the EPS growth. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.

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

This free interactive report on Hotai Finance's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Hotai Finance's TSR for the last 3 years was 63%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Hotai Finance shareholders gained a total return of 0.6% during the year. But that return falls short of the market. On the bright side, the longer term returns (running at about 8% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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 Hotai Finance is showing 3 warning signs in our investment analysis , and 1 of those shouldn't be ignored...

For those who like to find winning investments this free list of growing 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 Taiwanese 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.