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One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at China Resources Beer (Holdings) Company Limited (HKG:291), which is up 99%, over three years, soundly beating the market return of 31% (not including dividends).
See our latest analysis for China Resources Beer (Holdings)
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. 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.
Over the last three years, China Resources Beer (Holdings) failed to grow earnings per share, which fell 7.2% (annualized). Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Therefore, we think it’s worth considering other metrics as well.
Languishing at just 0.7%, we doubt the dividend is doing much to prop up the share price. It may well be that China Resources Beer (Holdings) revenue growth rate of 3.3% over three years has convinced shareholders to believe in a brighter future. If the company is being managed for the long term good, today’s shareholders might be right to hold on.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. This free report showing analyst forecasts should help you form a view on China Resources Beer (Holdings)
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, China Resources Beer (Holdings)’s TSR for the last 3 years was 120%, 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
While it’s never nice to take a loss, China Resources Beer (Holdings) shareholders can take comfort that, including dividends, their trailing twelve month loss of 4.2% wasn’t as bad as the market loss of around 5.1%. Longer term investors wouldn’t be so upset, since they would have made 25%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of China Resources Beer (Holdings) by clicking this link.