The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. For example, the Zhongguancun Science-Tech Leasing Co., Ltd. (HKG:1601) share price is up 38% in the last year, clearly besting the market return of around 26% (not including dividends). So that should have shareholders smiling. Zhongguancun Science-Tech Leasing hasn't been listed for long, so it's still not clear if it is a long term winner.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).
Over the last twelve months, Zhongguancun Science-Tech Leasing actually shrank its EPS by 11%.
Given the share price gain, we doubt the market is measuring progress with EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.
For starters, we suspect the share price has been buoyed by the dividend, which was increased during the year. It could be that the company is reaching maturity and dividend investors are buying for the yield, pushing the price up in the process. Furthermore, the revenue growth of 17% probably also encouraged buyers.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Take a more thorough look at Zhongguancun Science-Tech Leasing's financial health with this free report on its balance sheet.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Zhongguancun Science-Tech Leasing the TSR over the last year was 45%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Zhongguancun Science-Tech Leasing shareholders should be happy with the total gain of 45% over the last twelve months, including dividends. A substantial portion of that gain has come in the last three months, with the stock up 22% in that time. This suggests the company is continuing to win over new investors. 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 3 warning signs for Zhongguancun Science-Tech Leasing (1 doesn't sit too well with us!) that you should be aware of before investing here.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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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