By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, the Shandong Xinchao Energy Corporation Limited (SHSE:600777) share price is up 61% in the last three years, clearly besting the market decline of around 9.3% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 6.8% in the last year.
The past week has proven to be lucrative for Shandong Xinchao Energy investors, so let's see if fundamentals drove the company's three-year performance.
View our latest analysis for Shandong Xinchao Energy
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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, Shandong Xinchao Energy achieved compound earnings per share growth of 50% per year. The average annual share price increase of 17% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock. We'd venture the lowish P/E ratio of 6.81 also reflects the negative sentiment around the stock.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into Shandong Xinchao Energy's key metrics by checking this interactive graph of Shandong Xinchao Energy's earnings, revenue and cash flow.
A Different Perspective
It's nice to see that Shandong Xinchao Energy shareholders have received a total shareholder return of 6.8% over the last year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 0.5% 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. Is Shandong Xinchao Energy cheap compared to other companies? These 3 valuation measures might help you decide.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.