Passive investing in index funds can generate returns that roughly match the overall market. But investors can boost returns by picking market-beating companies to own shares in. To wit, the China Nonferrous Mining Corporation Limited (HKG:1258) share price is 17% higher than it was a year ago, much better than the market return of around 5.5% (not including dividends) in the same period. So that should have shareholders smiling. Having said that, the longer term returns aren’t so impressive, with stock gaining just 9.4% in three years.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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, China Nonferrous Mining actually saw its earnings per share drop 7.8%.
So we don’t think that investors are paying too much attention to EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.
Revenue was pretty stable on last year, so deeper research might be needed to explain the share price rise.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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 and spin-offs. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, China Nonferrous Mining’s TSR for the last year was 22%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We’re pleased to report that China Nonferrous Mining shareholders have received a total shareholder return of 22% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 0.5%. 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we’ve identified 2 warning signs for China Nonferrous Mining that you should be aware of.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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