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The main point of investing for the long term is to make money. Furthermore, you’d generally like to see the share price rise faster than the market But Shenzhen Investment Limited (HKG:604) has fallen short of that second goal, with a share price rise of 19% over five years, which is below the market return. But if you include dividends then the return is market-beating. Zooming in, the stock is actually down 14% in the last year.
Check out our latest analysis for Shenzhen Investment
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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 five years of share price growth, Shenzhen Investment actually saw its EPS drop 24% per year. The strong decline in earnings per share suggests the market isn’t using EPS to judge the company. The falling EPS doesn’t correlate with the climbing share price, so it’s worth taking a look at other metrics.
We note that the dividend has not increased, so that doesn’t seem to explain the increase, either. But it’s reasonably likely that the 9.7% annual compound revenue growth is considered evidence that Shenzhen Investment has plenty of growth ahead of it. In that case, the company may be sacrificing current earnings per share to drive growth.
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.
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Shenzhen Investment the TSR over the last 5 years was 59%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
The total return of 8.8% received by Shenzhen Investment shareholders over the last year isn’t far from the market return of -8.5%. Longer term investors wouldn’t be so upset, since they would have made 9.7%, each year, over five years. If the fundamental data remains strong, and the share price is simply down on sentiment, then this could be an opportunity worth investigating. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.