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Is Fanhua's (NASDAQ:FANH) 231% Share Price Increase Well Justified?

Simply Wall St

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on a lighter note, a good company can see its share price rise well over 100%. Long term Fanhua Inc. (NASDAQ:FANH) shareholders would be well aware of this, since the stock is up 231% in five years. We note the stock price is up 3.9% in the last seven days.

View our latest analysis for Fanhua

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.

During five years of share price growth, Fanhua achieved compound earnings per share (EPS) growth of 25% per year. So the EPS growth rate is rather close to the annualized share price gain of 27% per year. This indicates that investor sentiment towards the company has not changed a great deal. Rather, the share price has approximately tracked EPS growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

NasdaqGS:FANH Past and Future Earnings, January 4th 2020

It is of course excellent to see how Fanhua has grown profits over the years, but the future is more important for shareholders. This free interactive report on Fanhua'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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Fanhua, it has a TSR of 266% 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

Fanhua shareholders are up 21% for the year (even including dividends) . But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 30% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. Before forming an opinion on Fanhua you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.