Shareholders of Xiabuxiabu Catering Management (China) Holdings (HKG:520) Must Be Delighted With Their 619% Total Return

We think all investors should try to buy and hold high quality multi-year winners. While not every stock performs well, when investors win, they can win big. Don't believe it? Then look at the Xiabuxiabu Catering Management (China) Holdings Co., Ltd. (HKG:520) share price. It's 556% higher than it was five years ago. And this is just one example of the epic gains achieved by some long term investors. It's also good to see the share price up 62% over the last quarter.

It really delights us to see such great share price performance for investors.

Check out our latest analysis for Xiabuxiabu Catering Management (China) Holdings

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During five years of share price growth, Xiabuxiabu Catering Management (China) Holdings actually saw its EPS drop 3.3% per year.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The modest 0.7% dividend yield is unlikely to be propping up the share price. On the other hand, Xiabuxiabu Catering Management (China) Holdings' revenue is growing nicely, at a compound rate of 21% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

It's probably worth noting that the CEO is paid less than the median at similar sized 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. So we recommend checking out this free report showing consensus forecasts

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Xiabuxiabu Catering Management (China) Holdings the TSR over the last 5 years was 619%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Xiabuxiabu Catering Management (China) Holdings shareholders have received a total shareholder return of 64% over the last year. That's including the dividend. That's better than the annualised return of 48% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Xiabuxiabu Catering Management (China) Holdings you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.

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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. 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.
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