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Low-cost index funds make it easy to achieve average market returns. But if you invest in individual stocks, some are likely to underperform. For example, the Guangnan (Holdings) Limited (HKG:1203) share price return of 10% over three years lags the market return in the same period. Zooming in, the stock is up just 3.2% in the last year.
View our latest analysis for Guangnan (Holdings)
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 the three years of share price growth, Guangnan (Holdings) actually saw its earnings per share (EPS) drop 11% per year. The strong decline in earnings per share suggests the market isn’t using EPS to judge the company. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
We doubt the dividend payments explain the share price rise, since we don’t see any improvement in that regard. Many investors probably think the fact that Guangnan (Holdings)’s revenue has been declining at a rate of 6.0% per year is a real negative. If revenue keeps shrinking, it may be difficult to find earnings growth in the future.
Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
Take a more thorough look at Guangnan (Holdings)’s financial health with this free report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Guangnan (Holdings) the TSR over the last 3 years was 22%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s nice to see that Guangnan (Holdings) shareholders have received a total shareholder return of 7.7% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 3.1%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Keeping this in mind, a solid next step might be to take a look at Guangnan (Holdings)’s dividend track record. This free interactive graph is a great place to start.