Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. For example, long term Sichuan Expressway Company Limited (HKG:107) shareholders have enjoyed a 29% share price rise over the last half decade, well in excess of the market return of around 21% (not including dividends).

See our latest analysis for Sichuan Expressway

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.

Sichuan Expressway’s earnings per share are down 4.0% per year, despite strong share price performance over five years. So it’s hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it’s worth taking a look at other metrics to try to understand the share price movements.

We note that the dividend is higher than it was previously – always nice to see. Maybe dividend investors have helped support the share price.

The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).

We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So it makes a lot of sense to check out what analysts think Sichuan Expressway will earn in the future (free profit forecasts)

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Sichuan Expressway’s TSR for the last 5 years was 56%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Sichuan Expressway shareholders are down 5.6% over twelve months (even including dividends), which isn’t far from the market return of -5.6%. Longer term investors wouldn’t be so upset, since they would have made 9.3%, each year, over five years. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. Importantly, we haven’t analysed Sichuan Expressway’s dividend history. This free visual report on its dividends is a must-read if you’re thinking of buying.