China Development Bank Financial Leasing's (HKG:1606) Stock Price Has Reduced 33% In The Past Three Years

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term China Development Bank Financial Leasing Co., Ltd. (HKG:1606) shareholders have had that experience, with the share price dropping 33% in three years, versus a market decline of about 4.8%. Unhappily, the share price slid 3.3% in the last week.

Check out our latest analysis for China Development Bank Financial Leasing

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Although the share price is down over three years, China Development Bank Financial Leasing actually managed to grow EPS by 17% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

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.

We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. It's good to see that China Development Bank Financial Leasing has increased its revenue over the last three years. But it's not clear to us why the share price is down. It might be worth diving deeper into the fundamentals, lest an opportunity goes begging.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free report showing analyst forecasts should help you form a view on China Development Bank Financial Leasing

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for China Development Bank Financial Leasing the TSR over the last 3 years was -16%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

China Development Bank Financial Leasing shareholders are up 1.6% for the year (even including dividends). It's always nice to make money but this return falls short of the market return which was about 26% for the year. On the bright side, that's certainly better than the yearly loss of about 5% endured over the last three years, implying that the company is doing better recently. We hope the turnaround in fortunes continues. 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 for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with China Development Bank Financial Leasing (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

Of course China Development Bank Financial Leasing may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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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