The 40% return delivered to Central Reinsurance's (TWSE:2851) shareholders actually lagged YoY earnings growth

If you want to compound wealth in the stock market, you can do so by buying an index fund. But if you pick the right individual stocks, you could make more than that. To wit, the Central Reinsurance Corporation (TWSE:2851) share price is 40% higher than it was a year ago, much better than the market return of around 26% (not including dividends) in the same period. That's a solid performance by our standards! However, the longer term returns haven't been so impressive, with the stock up just 0.6% in the last three years.

Since the stock has added NT$1.6b 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 Central Reinsurance

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

During the last year Central Reinsurance grew its earnings per share (EPS) by 165%. This EPS growth is significantly higher than the 40% increase in the share price. So it seems like the market has cooled on Central Reinsurance, despite the growth. Interesting. The caution is also evident in the lowish P/E ratio of 11.43.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

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

A Different Perspective

We're pleased to report that Central Reinsurance shareholders have received a total shareholder return of 40% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 11% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Central Reinsurance better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Central Reinsurance .

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 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.