Long term investing works well, but it doesn’t always work for each individual stock. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Wuxi Sunlit Science and Technology Company Limited (HKG:1289) for half a decade as the share price tanked 89%. And we doubt long term believers are the only worried holders, since the stock price has declined 37% over the last twelve months. Even worse, it’s down 12% in about a month, which isn’t fun at all.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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 five years of share price growth, Wuxi Sunlit Science and Technology moved from a loss to profitability. Most would consider that to be a good thing, so it’s counter-intuitive to see the share price declining. Other metrics may better explain the share price move.
The most recent dividend was actually lower than it was in the past, so that may have sent the share price lower. On top of that, revenue has declined by 11% per year over the half decade; that could be a red flag for some investors.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
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 the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between Wuxi Sunlit Science and Technology’s total shareholder return (TSR) and its share price change, which we’ve covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Wuxi Sunlit Science and Technology shareholders, and that cash payout explains why its total shareholder loss of 87%, over the last 5 years, isn’t as bad as the share price return.
A Different Perspective
Wuxi Sunlit Science and Technology shareholders are down 35% for the year (even including dividends) , but the market itself is up 9.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 34% over the last half decade. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. It’s always interesting to track share price performance over the longer term. But to understand Wuxi Sunlit Science and Technology better, we need to consider many other factors. For example, we’ve discovered 5 warning signs for Wuxi Sunlit Science and Technology (of which 1 is major) which any shareholder or potential investor should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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