As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Guangzhou Rural Commercial Bank Co., Ltd. (HKG:1551) shareholders have had that experience, with the share price dropping 39% in three years, versus a market decline of about 7.2%. Furthermore, it's down 10% in about a quarter. That's not much fun for holders.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
Although the share price is down over three years, Guangzhou Rural Commercial Bank actually managed to grow EPS by 1.6% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.
It looks to us like the market was probably too optimistic around growth three years ago. But it's possible a look at other metrics will be enlightening.
Given the healthiness of the dividend payments, we doubt that they've concerned the market. Guangzhou Rural Commercial Bank has maintained its top line over three years, so we doubt that has shareholders worried. A closer look at revenue and profit trends might yield insights.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on Guangzhou Rural Commercial Bank'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. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Guangzhou Rural Commercial Bank, it has a TSR of -29% for the last 3 years. 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
Guangzhou Rural Commercial Bank shareholders are down 10% for the year, (even including dividends), but the broader market is up 2.4%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. However, the loss over the last year isn't as bad as the 8.8% per annum loss investors have suffered over the last three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 1 warning sign for Guangzhou Rural Commercial Bank that you should be aware of before investing here.
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.
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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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