Investors Who Bought PetroChina (HKG:857) Shares Five Years Ago Are Now Down 49%

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Ideally, your overall portfolio should beat the market average. But the main game is to find enough winners to more than offset the losers So we wouldn’t blame long term PetroChina Company Limited (HKG:857) shareholders for doubting their decision to hold, with the stock down 49% over a half decade. On top of that, the share price has dropped a further 11% in a month. However, we note the price may have been impacted by the broader market, which is down 5.4% in the same time period.

Check out our latest analysis for PetroChina

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 five years over which the share price declined, PetroChina’s earnings per share (EPS) dropped by 16% each year. This fall in the EPS is worse than the 13% compound annual share price fall. So investors might expect EPS to bounce back — or they may have previously foreseen the EPS decline.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

SEHK:857 Past and Future Earnings, May 10th 2019
SEHK:857 Past and Future Earnings, May 10th 2019

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. It might be well worthwhile taking a look at our free report on PetroChina’s earnings, revenue and cash flow.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, PetroChina’s TSR for the last 5 years was -42%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market lost about 7.9% in the twelve months, PetroChina shareholders did even worse, losing 19% (even including dividends). Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% over the last half decade. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. Keeping this in mind, a solid next step might be to take a look at PetroChina’s dividend track record. This free interactive graph is a great place to start.

But note: PetroChina 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.

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 editorial-team@simplywallst.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.