By buying an index fund, you can roughly match the market return with ease.  But many of us dare to dream of bigger returns, and build a portfolio ourselves.  Just take a look at China Oilfield Services Limited (HKG:2883), which is up 55%, over three years, soundly beating the market decline of 26% (not including dividends).    

Since the long term performance has been good but there's been a recent pullback of 5.1%, let's check if the fundamentals match the share price.  

Check out our latest analysis for China Oilfield Services

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 three years of share price growth, China Oilfield Services achieved compound earnings per share growth of 0.1% per year.   In comparison, the 16% per year gain in the share price outpaces the EPS growth.  So it's fair to assume the market has a higher opinion of the business than it did three years ago.  It is quite common to see investors become enamoured with a business, after a few years of solid progress.  

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies.  It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years.  Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested.  Arguably, the TSR gives a more comprehensive picture of the return generated by a stock.  As it happens, China Oilfield Services' TSR for the last 3 years was 66%, which exceeds the share price return mentioned earlier.  The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in China Oilfield Services had a tough year, with a total loss of 5.2% (including dividends), against a market gain of about 9.1%.  However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period.     On the bright side, long term shareholders have made money, with a gain of 6% per year over half a decade.  It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend.        Is China Oilfield Services cheap compared to other companies? These 3 valuation measures might help you decide.  

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong exchanges.