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Generally speaking long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. For example, after five long years the Capital Estate Limited (HKG:193) share price is a whole 74% lower. That's not a lot of fun for true believers. And some of the more recent buyers are probably worried, too, with the stock falling 33% in the last year. Furthermore, it's down 24% in about a quarter. That's not much fun for holders.
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View our latest analysis for Capital Estate
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 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 five years of share price growth, Capital Estate moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics might give us a better handle on how its value is changing over time.
In contrast to the share price, revenue has actually increased by 28% a year in the five year period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Capital Estate's total shareholder return (TSR) and its share price return. 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 and spin-offs. We note that Capital Estate's TSR, at -68% is higher than its share price return of -74%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.