Generally speaking long term investing is the way to go. But along the way some stocks are going to perform badly. For example the Zuoli Kechuang Micro-finance Company Limited (HKG:6866) share price dropped 74% over five years. That is extremely sub-optimal, to say the least.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 the five years over which the share price declined, Zuoli Kechuang Micro-finance's earnings per share (EPS) dropped by 1.7% each year. This reduction in EPS is less than the 24% annual reduction in the share price. This implies that the market was previously too optimistic about the stock. The low P/E ratio of 3.08 further reflects this reticence.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
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. It might be well worthwhile taking a look at our free report on Zuoli Kechuang Micro-finance's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Zuoli Kechuang Micro-finance's total shareholder return (TSR) and its 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 and spin-offs. Its history of dividend payouts mean that Zuoli Kechuang Micro-finance's TSR, which was a 62% drop over the last 5 years, was not as bad as the share price return.
A Different Perspective
While the broader market gained around 5.2% in the last year, Zuoli Kechuang Micro-finance shareholders lost 16%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn't as bad as the 10% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It's always interesting to track share price performance over the longer term. But to understand Zuoli Kechuang Micro-finance better, we need to consider many other factors. For example, we've discovered 2 warning signs for Zuoli Kechuang Micro-finance (1 is concerning!) that you should be aware of before investing here.
But note: Zuoli Kechuang Micro-finance may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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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