When you buy a stock there is always a possibility that it could drop 100%. But on a lighter note, a good company can see its share price rise well over 100%. One great example is Zhengzhou Coal Mining Machinery Group Company Limited (HKG:564) which saw its share price drive 136% higher over five years. Shareholders are also celebrating an even better 139% rise, over the last three months. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.
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, Zhengzhou Coal Mining Machinery Group achieved compound earnings per share (EPS) growth of 138% per year. The EPS growth is more impressive than the yearly share price gain of 19% over the same period. So one could conclude that the broader market has become more cautious towards the stock. The reasonably low P/E ratio of 8.11 also suggests market apprehension.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how Zhengzhou Coal Mining Machinery Group has grown profits over the years, but the future is more important for shareholders. This free interactive report on Zhengzhou Coal Mining Machinery Group’s balance sheet strength is a great place to start, if you want to investigate the stock further.
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 incorporates the value of any spin-offs or 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. In the case of Zhengzhou Coal Mining Machinery Group, it has a TSR of 168% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It’s nice to see that Zhengzhou Coal Mining Machinery Group shareholders have received a total shareholder return of 101% over the last year. That’s including the dividend. That’s better than the annualised return of 22% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It’s always interesting to track share price performance over the longer term. But to understand Zhengzhou Coal Mining Machinery Group better, we need to consider many other factors. Even so, be aware that Zhengzhou Coal Mining Machinery Group is showing 2 warning signs in our investment analysis , you should know about…
But note: Zhengzhou Coal Mining Machinery Group may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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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