Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
It’s easy to match the overall market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Alpha Era International Holdings Limited (HKG:8406) have tasted that bitter downside in the last year, as the share price dropped 29%. That falls noticeably short of the market return of around -1.1%. We wouldn’t rush to judgement on Alpha Era International Holdings because we don’t have a long term history to look at. The falls have accelerated recently, with the share price down 28% in the last three months.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the unfortunate twelve months during which the Alpha Era International Holdings share price fell, it actually saw its earnings per share (EPS) improve by 127%. It’s quite possible that growth expectations may have been unreasonable in the past. It’s surprising to see the share price fall so much, despite the improved EPS. But we might find some different metrics explain the share price movements better.
Alpha Era International Holdings’s dividend seems healthy to us, so we doubt that the yield is a concern for the market. From what we can see, revenue is pretty flat, so that doesn’t really explain the share price drop. Unless, of course, the market was expecting a revenue uptick.
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. It might be well worthwhile taking a look at our free report on Alpha Era International Holdings’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. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Alpha Era International Holdings’s TSR for the last year was -26%, 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
We doubt Alpha Era International Holdings shareholders are happy with the loss of 26% over twelve months (even including dividends). That falls short of the market, which lost 1.1%. That’s disappointing, but it’s worth keeping in mind that the market-wide selling wouldn’t have helped. Notably, the loss over the last year isn’t as bad as the 28% drop in the last three months. This probably signals that the business has recently disappointed shareholders – it will take time to win them back. Before forming an opinion on Alpha Era International Holdings you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.