4.6% earnings growth over 3 years has not materialized into gains for BOC Aviation (HKG:2588) shareholders over that period

Investors are understandably disappointed when a stock they own declines in value. But it's hard to avoid some disappointing investments when the overall market is down. The BOC Aviation Limited (HKG:2588) is down 19% over three years, but the total shareholder return is -8.2% once you include the dividend. And that total return actually beats the market decline of 20%. Furthermore, it's down 10% in about a quarter. That's not much fun for holders.

With the stock having lost 3.7% 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 BOC Aviation

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 the unfortunate three years of share price decline, BOC Aviation actually saw its earnings per share (EPS) improve by 14% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. Revenue has been pretty flat over three years, so that isn't an obvious reason shareholders would sell. A closer look at revenue and profit trends might yield insights.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

BOC Aviation is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for BOC Aviation in this interactive graph of future profit estimates.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. We note that for BOC Aviation the TSR over the last 3 years was -8.2%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

BOC Aviation shareholders are down 5.5% for the year (even including dividends), but the market itself is up 7.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 0.3%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 2 warning signs for BOC Aviation (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

But note: BOC Aviation may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com