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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 the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For example, the China Water Affairs Group Limited (HKG:855) share price has soared 204% in the last half decade. Most would be very happy with that. In the last week shares have slid back 2.5%.
See our latest analysis for China Water Affairs Group
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During five years of share price growth, China Water Affairs Group achieved compound earnings per share (EPS) growth of 30% per year. So the EPS growth rate is rather close to the annualized share price gain of 25% per year. This indicates that investor sentiment towards the company has not changed a great deal. In fact, the share price seems to largely reflect the EPS growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how China Water Affairs Group has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at China Water Affairs Group's financial health with this free report on its balance sheet.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, China Water Affairs Group's TSR for the last 5 years was 247%, 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
It's nice to see that China Water Affairs Group shareholders have received a total shareholder return of 1.6% over the last year. Of course, that includes the dividend. However, that falls short of the 28% TSR per annum it has made for shareholders, each year, over five years. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. Keeping this in mind, a solid next step might be to take a look at China Water Affairs Group's dividend track record. This free interactive graph is a great place to start.