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You can receive the average market return by buying a low-cost index fund. But if you pick the right individual stocks, you could make more than that. Notably, the Lee's Pharmaceutical Holdings Limited (HKG:950) share price has gained 34% in three years, which is better than the average market return. The bad news is that the share price seems to lack positive momentum recently, since it has dropped 27% in the last year.

See our latest analysis for Lee's Pharmaceutical Holdings

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Lee's Pharmaceutical Holdings was able to grow its EPS at 21% per year over three years, sending the share price higher. This EPS growth is higher than the 10% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 10.20.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on Lee's Pharmaceutical Holdings's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Lee's Pharmaceutical Holdings, it has a TSR of 40% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We regret to report that Lee's Pharmaceutical Holdings shareholders are down 27% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 2.5%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 2.8% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.