The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. For example, the Consun Pharmaceutical Group Limited (HKG:1681) share price is down 32% in the last year. That contrasts poorly with the market return of -2.2%. At least the damage isn’t so bad if you look at the last three years, since the stock is down 7.3% in that time. Furthermore, it’s down 11% in about a quarter. That’s not much fun for holders.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the unfortunate twelve months during which the Consun Pharmaceutical Group share price fell, it actually saw its earnings per share (EPS) improve by 13%. It’s quite possible that growth expectations may have been unreasonable in the past.
It’s fair to say that the share price does not seem to be reflecting the EPS growth. But we might find some different metrics explain the share price movements better.
We don’t see any weakness in the Consun Pharmaceutical Group’s dividend so the steady payout can’t really explain the share price drop. From what we can see, revenue is pretty flat, so that doesn’t really explain the share price drop. Of course, it could simply be that it simply fell short of the market consensus expectations.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It’s good to see that there was some significant insider buying in the last three months. That’s a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for Consun Pharmaceutical Group in this interactive graph of future profit estimates.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Consun Pharmaceutical Group, it has a TSR of -28% for the last year. That exceeds its share price return that we previously mentioned. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the broader market lost about 2.2% in the twelve months, Consun Pharmaceutical Group shareholders did even worse, losing 28% (even including dividends) . Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3.4% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It’s always interesting to track share price performance over the longer term. But to understand Consun Pharmaceutical Group better, we need to consider many other factors. Be aware that Consun Pharmaceutical Group is showing 1 warning sign in our investment analysis , you should know about…
Consun Pharmaceutical Group is not the only stock that insiders are buying. 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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