Luzhou Bank's (HKG:1983) one-year earnings growth trails the 33% YoY shareholder returns

There's no doubt that investing in the stock market is a truly brilliant way to build wealth. But if when you choose to buy stocks, some of them will be below average performers. Over the last year the Luzhou Bank Co., Ltd. (HKG:1983) share price is up 26%, but that's less than the broader market return. Having said that, the longer term returns aren't so impressive, with stock gaining just 15% in three years.

Since the stock has added HK$598m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Luzhou Bank was able to grow EPS by 23% in the last twelve months. This EPS growth is reasonably close to the 26% increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. It looks like the share price is responding to the EPS.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

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. It might be well worthwhile taking a look at our free report on Luzhou Bank's earnings, revenue and cash flow.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Luzhou Bank's TSR for the last 1 year was 33%, 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

Luzhou Bank provided a TSR of 33% over the last twelve months. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 3% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Luzhou Bank better, we need to consider many other factors. For instance, we've identified 1 warning sign for Luzhou Bank that you should be aware of.

We will like Luzhou Bank better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.