While not a mind-blowing move, it is good to see that the EVA Precision Industrial Holdings Limited (HKG:838) share price has gained 26% in the last three months. But over the last half decade, the stock has not performed well. In fact, the share price is down 32%, which falls well short of the return you could get by buying an index fund.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
While the share price declined over five years, EVA Precision Industrial Holdings actually managed to increase EPS by an average of 7.6% per year. So it doesn’t seem like EPS is a great guide to understanding how the market is valuing the stock. Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS. Because of the sharp contrast between the EPS growth rate and the share price growth, we’re inclined to look to other metrics to understand the changing market sentiment around the stock.
We don’t think that the 1.7% is big factor in the share price, since it’s quite small, as dividends go. In contrast to the share price, revenue has actually increased by 1.7% a year in the five year period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.
Depicted in the graphic below, you’ll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for EVA Precision Industrial Holdings the TSR over the last 5 years was -25%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market lost about 4.0% in the twelve months, EVA Precision Industrial Holdings shareholders did even worse, losing 25% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5.7% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. Before deciding if you like the current share price, check how EVA Precision Industrial Holdings scores on these 3 valuation metrics.
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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