Investors in Xiaomi (HKG:1810) have seen incredible returns of 327% over the past three years

For us, stock picking is in large part the hunt for the truly magnificent stocks. But when you hold the right stock for the right time period, the rewards can be truly huge. For example, the Xiaomi Corporation (HKG:1810) share price is up a whopping 327% in the last three years, a handsome return for long term holders. It's also good to see the share price up 25% over the last quarter.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

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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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During three years of share price growth, Xiaomi achieved compound earnings per share growth of 41% per year. In comparison, the 62% per year gain in the share price outpaces the EPS growth. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It's not unusual to see the market 're-rate' a stock, after a few years of growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It is of course excellent to see how Xiaomi has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Xiaomi's financial health with this free report on its balance sheet.

A Different Perspective

It's nice to see that Xiaomi shareholders have received a total shareholder return of 246% over the last year. That gain is better than the annual TSR over five years, which is 28%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Before spending more time on Xiaomi it might be wise to click here to see if insiders have been buying or selling shares.

But note: Xiaomi may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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