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For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Bank of Tianjin Co., Ltd. (HKG:1578) shareholders have had that experience, with the share price dropping 48% in three years, versus a market return of about 13%. Shareholders have had an even rougher run lately, with the share price down 14% in the last 90 days. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
View our latest analysis for Bank of Tianjin
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the three years that the share price fell, Bank of Tianjin's earnings per share (EPS) dropped by 9.2% each year. This reduction in EPS is slower than the 20% annual reduction in the share price. So it seems the market was too confident about the business, in the past. This increased caution is also evident in the rather low P/E ratio, which is sitting at 4.64.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Bank of Tianjin the TSR over the last 3 years was -41%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
We can sympathize with Bank of Tianjin about their 2.6% loss for the year ( including dividends), but the silver lining is that the broader market return was worse, at around -8.8%. The one-year return is also not as bad as the 16% per annum loss investors have suffered over the last three years. It could well be that the business has begun to stabilize, though the recent returns are hardly impressive. Keeping this in mind, a solid next step might be to take a look at Bank of Tianjin's dividend track record. This free interactive graph is a great place to start.