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The simplest way to invest in stocks is to buy exchange traded funds. But investors can boost returns by picking market-beating companies to own shares in. For example, the Tianda Pharmaceuticals Limited (HKG:455) share price is up 44% in the last year, clearly besting the market return of around -7.5% (not including dividends). So that should have shareholders smiling. Unfortunately the longer term returns are not so good, with the stock falling 28% in the last three years.
Check out our latest analysis for Tianda Pharmaceuticals
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. 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 the last year, Tianda Pharmaceuticals actually saw its earnings per share drop 72%. We do note that there were extraordinary items impacting the result.
This means it's unlikely the market is judging the company based on earnings growth. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.
We doubt the modest 0.4% dividend yield is doing much to support the share price. We think that the revenue growth of 4.5% could have some investors interested. Many businesses do go through a phase where they have to forgo some profits to drive business development, and sometimes its for the best.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting that the CEO is paid less than the median at similar sized 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. It might be well worthwhile taking a look at our free report on Tianda Pharmaceuticals's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Tianda Pharmaceuticals's total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Tianda Pharmaceuticals shareholders, and that cash payout contributed to why its TSR of 44%, over the last year, is better than the share price return.
A Different Perspective
It's nice to see that Tianda Pharmaceuticals shareholders have received a total shareholder return of 44% over the last year. And that does include the dividend. Notably the five-year annualised TSR loss of 1.9% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. It's always interesting to track share price performance over the longer term. But to understand Tianda Pharmaceuticals better, we need to consider many other factors. Be aware that Tianda Pharmaceuticals is showing 4 warning signs in our investment analysis , you should know about...