When we invest, we're generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Zhengzhou Coal Mining Machinery Group Company Limited (SHSE:601717) shareholders have enjoyed a 97% share price rise over the last half decade, well in excess of the market return of around 28% (not including dividends).

Although Zhengzhou Coal Mining Machinery Group has shed CN¥748m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for Zhengzhou Coal Mining Machinery Group

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Zhengzhou Coal Mining Machinery Group achieved compound earnings per share (EPS) growth of 35% per year. This EPS growth is higher than the 15% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.24.

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

We know that Zhengzhou Coal Mining Machinery Group has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Zhengzhou Coal Mining Machinery Group, it has a TSR of 129% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

While it's certainly disappointing to see that Zhengzhou Coal Mining Machinery Group shares lost 3.7% throughout the year, that wasn't as bad as the market loss of 4.8%. Longer term investors wouldn't be so upset, since they would have made 18%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should be aware of the 1 warning sign we've spotted with Zhengzhou Coal Mining Machinery Group .

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.