By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Jiangsu Changbao Steeltube Co.,Ltd (SZSE:002478) shareholders have seen the share price rise 46% over three years, well in excess of the market decline (26%, not including dividends).

Since the stock has added CN¥492m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Jiangsu Changbao SteeltubeLtd

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, Jiangsu Changbao SteeltubeLtd achieved compound earnings per share growth of 29% per year. This EPS growth is higher than the 13% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.45.

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

We know that Jiangsu Changbao SteeltubeLtd 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?

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, Jiangsu Changbao SteeltubeLtd's TSR for the last 3 years was 56%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Although it hurts that Jiangsu Changbao SteeltubeLtd returned a loss of 12% in the last twelve months, the broader market was actually worse, returning a loss of 18%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 4% for each year. In the best case scenario the last year is just a temporary blip on the journey to 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. Take risks, for example - Jiangsu Changbao SteeltubeLtd has 1 warning sign we think you should be aware of.

Of course Jiangsu Changbao SteeltubeLtd 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 Chinese 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.