Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. To wit, the MeiHua Holdings GroupLtd share price has climbed 91% in five years, easily topping the market decline of 0.2% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 18% in the last year , including dividends .

Since the stock has added CN¥1.0b to its market cap in the past week alone, let's see if underlying performance has been driving long-term 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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During five years of share price growth, MeiHua Holdings GroupLtd achieved compound earnings per share (EPS) growth of 28% per year. The EPS growth is more impressive than the yearly share price gain of 14% over the same period. So it seems the market isn't so enthusiastic about the stock these days. The reasonably low P/E ratio of 9.62 also suggests market apprehension.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that MeiHua Holdings GroupLtd has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on MeiHua Holdings GroupLtd's balance sheet strength is a great place to start, if you want to investigate the stock further.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, MeiHua Holdings GroupLtd's TSR for the last 5 years was 148%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that MeiHua Holdings GroupLtd has rewarded shareholders with a total shareholder return of 18% in the last twelve months. And that does include the dividend. Having said that, the five-year TSR of 20% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand MeiHua Holdings 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 MeiHua Holdings GroupLtd .

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.

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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.