Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in Datang Environment Industry Group Co., Ltd. (HKG:1272) have tasted that bitter downside in the last year, as the share price dropped 20%. That’s well bellow the market return of -5.0%. Datang Environment Industry Group hasn’t been listed for long, so although we’re wary of recent listings that perform poorly, it may still prove itself with time. On the other hand, we note it’s up 9.6% in about a month. But this could be related to good market conditions, with stocks up around 4.2% during the period.
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 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.
Unhappily, Datang Environment Industry Group had to report a 8.7% decline in EPS over the last year. The share price decline of 20% is actually more than the EPS drop. This suggests the EPS fall has made some shareholders are more nervous about the business. The P/E ratio of 6.17 also points to the negative market sentiment.
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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Datang Environment Industry Group’s TSR for the last year was -15%, 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
Datang Environment Industry Group shareholders are down 15% for the year (even including dividends), even worse than the market loss of 5.0%. There’s no doubt that’s a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 1.8%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Keeping this in mind, a solid next step might be to take a look at Datang Environment Industry Group’s dividend track record. This free interactive graph is a great place to start.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).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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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.