Passive investing in index funds can generate returns that roughly match the overall market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the China Boqi Environmental (Holding) Co., Ltd. (HKG:2377) share price is up 79% in the last year, clearly besting the market decline of around 1.9% (not including dividends). So that should have shareholders smiling. China Boqi Environmental (Holding) hasn’t been listed for long, so it’s still not clear if it is a long term winner.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
Over the last twelve months, China Boqi Environmental (Holding) actually shrank its EPS by 7.8%.
This means it’s unlikely the market is judging the company based on earnings growth. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.
We doubt the modest 1.6% dividend yield is doing much to support the share price. Revenue was pretty flat year on year, but maybe a closer look at the data can explain the market optimism.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized 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. This free interactive report on China Boqi Environmental (Holding)’s earnings, revenue and cash flow 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. 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, China Boqi Environmental (Holding)’s TSR for the last year was 83%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
China Boqi Environmental (Holding) boasts a total shareholder return of 83% for the last year (that includes the dividends) . A substantial portion of that gain has come in the last three months, with the stock up 53% in that time. This suggests the company is continuing to win over new investors. It’s always interesting to track share price performance over the longer term. But to understand China Boqi Environmental (Holding) better, we need to consider many other factors. Case in point: We’ve spotted 2 warning signs for China Boqi Environmental (Holding) you should be aware of.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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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