As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Yunnan Baiyao Group Co.,Ltd (SZSE:000538) shareholders have had that experience, with the share price dropping 41% in three years, versus a market decline of about 15%.

It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 the three years that the share price fell, Yunnan Baiyao GroupLtd's earnings per share (EPS) dropped by 9.4% each year. The share price decline of 16% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Yunnan Baiyao GroupLtd 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Yunnan Baiyao GroupLtd, it has a TSR of -36% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While it's certainly disappointing to see that Yunnan Baiyao GroupLtd shares lost 7.3% throughout the year, that wasn't as bad as the market loss of 14%. Unfortunately, last year's performance may indicate unresolved challenges, given that it's worse than the annualised loss of 2% over the last half decade. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. It's always interesting to track share price performance over the longer term. But to understand Yunnan Baiyao GroupLtd better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Yunnan Baiyao GroupLtd .

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.