Investors three-year losses continue as Hebei Construction Group (HKG:1727) dips a further 12% this week, earnings continue to decline

By
Simply Wall St
Published
March 14, 2022
SEHK:1727
Source: Shutterstock

It's not possible to invest over long periods without making some bad investments. But you have a problem if you face massive losses more than once in a while. So spare a thought for the long term shareholders of Hebei Construction Group Corporation Limited (HKG:1727); the share price is down a whopping 82% in the last three years. That'd be enough to cause even the strongest minds some disquiet. And over the last year the share price fell 58%, so we doubt many shareholders are delighted. Unfortunately the share price momentum is still quite negative, with prices down 31% in thirty days. We do note, however, that the broader market is down 14% in that period, and this may have weighed on the share price. We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

With the stock having lost 12% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

Check out our latest analysis for Hebei Construction Group

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Hebei Construction Group saw its EPS decline at a compound rate of 22% per year, over the last three years. The share price decline of 43% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past. This increased caution is also evident in the rather low P/E ratio, which is sitting at 2.14.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth
SEHK:1727 Earnings Per Share Growth March 14th 2022

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. Dive deeper into the earnings by checking this interactive graph of Hebei Construction Group'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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Hebei Construction Group's TSR for the last 3 years was -79%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Hebei Construction Group shareholders are down 56% for the year (even including dividends), falling short of the market return. Meanwhile, the broader market slid about 22%, likely weighing on the stock. The three-year loss of 21% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. It's always interesting to track share price performance over the longer term. But to understand Hebei Construction Group better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Hebei Construction Group you should be aware of, and 1 of them makes us a bit uncomfortable.

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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