Investors can approximate the average market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Unfortunately the The Hong Kong and China Gas Company Limited (HKG:3) share price slid 27% over twelve months. That contrasts poorly with the market decline of 5.0%. On the other hand, the stock is actually up 4.5% over three years. Unhappily, the share price slid 2.6% in the last week.
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.
Unhappily, Hong Kong and China Gas had to report a 25% decline in EPS over the last year. This proportional reduction in earnings per share isn’t far from the 27% decrease in the share price. Therefore one could posit that the market has not become more concerned about the company, despite the lower EPS. Instead, the change in the share price seems to reduction in earnings per share, alone.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
This free interactive report on Hong Kong and China Gas’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What about the Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between Hong Kong and China Gas’s total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Hong Kong and China Gas shareholders, and that cash payout explains why its total shareholder loss of 25%, over the last year, isn’t as bad as the share price return.
A Different Perspective
While the broader market lost about 5.0% in the twelve months, Hong Kong and China Gas shareholders did even worse, losing 25% (even including dividends) . However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Longer term investors wouldn’t be so upset, since they would have made 5.4%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It’s always interesting to track share price performance over the longer term. But to understand Hong Kong and China Gas better, we need to consider many other factors. Take risks, for example – Hong Kong and China Gas has 1 warning sign we think you should be aware of.
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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. Thank you for reading.