Active investing isn't easy, but for those that do it, the aim is to find the best companies to buy, and to profit handsomely. When an investor finds a multi-bagger (a stock that goes up over 200%), it makes a big difference to their portfolio. For example, the Jiangsu Zhengdan Chemical Industry Co., Ltd. (SZSE:300641) share price is up a whopping 374% in the last 1 year, a handsome return in a single year. Better yet, the share price has gained 586% in the last quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report. Also impressive, the stock is up 277% over three years, making long term shareholders happy, too.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Jiangsu Zhengdan Chemical Industry was able to grow EPS by 76% in the last twelve months. This EPS growth is significantly lower than the 374% increase in the share price. So it's fair to assume the market has a higher opinion of the business than it a year ago. The fairly generous P/E ratio of 217.43 also points to this optimism.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Jiangsu Zhengdan Chemical Industry's TSR for the last 1 year was 378%, 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

It's good to see that Jiangsu Zhengdan Chemical Industry has rewarded shareholders with a total shareholder return of 378% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 37% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Jiangsu Zhengdan Chemical Industry (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

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 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.