By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, China Resources Pharmaceutical Group Limited (HKG:3320) shareholders have seen the share price rise 55% over three years, well in excess of the market decline (13%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 21% in the last year, 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.
Check out our latest analysis for China Resources Pharmaceutical Group
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During three years of share price growth, China Resources Pharmaceutical Group achieved compound earnings per share growth of 13% per year. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 16% average annual increase in the share price. This suggests that sentiment and expectations have not changed drastically. Au contraire, the share price change has arguably mimicked the EPS growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that China Resources Pharmaceutical Group has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for China Resources Pharmaceutical Group the TSR over the last 3 years was 72%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
China Resources Pharmaceutical Group's TSR for the year was broadly in line with the market average, at 21%. The silver lining is that the share price is up in the short term, which flies in the face of the annualised loss of 1.6% over the last five years. While 'turnarounds seldom turn' there are green shoots for China Resources Pharmaceutical Group. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for China Resources Pharmaceutical Group you should know about.
But note: China Resources Pharmaceutical Group may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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.