Investors can buy low cost index fund if they want to receive the average market return. But in any diversified portfolio of stocks, you'll see some that fall short of the average. For example, the China Sanjiang Fine Chemicals Company Limited (HKG:2198) share price return of 15% over three years lags the market return in the same period. In the last year the stock has gained 14%.

Since the stock has added HK$250m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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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, China Sanjiang Fine Chemicals achieved compound earnings per share growth of 11% per year. This EPS growth is higher than the 5% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. We'd venture the lowish P/E ratio of 3.89 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).

This free interactive report on China Sanjiang Fine Chemicals' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

China Sanjiang Fine Chemicals shareholders are up 14% for the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 3% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. It's always interesting to track share price performance over the longer term. But to understand China Sanjiang Fine Chemicals better, we need to consider many other factors. Even so, be aware that China Sanjiang Fine Chemicals is showing 2 warning signs in our investment analysis , you should know about...

Of course China Sanjiang Fine Chemicals may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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