Stock Analysis

Positive earnings growth hasn't been enough to get Guangzhou Baiyunshan Pharmaceutical Holdings (HKG:874) shareholders a favorable return over the last five years

SEHK:874
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The main aim of stock picking is to find the market-beating stocks. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Guangzhou Baiyunshan Pharmaceutical Holdings Company Limited (HKG:874), since the last five years saw the share price fall 49%. And some of the more recent buyers are probably worried, too, with the stock falling 25% in the last year. More recently, the share price has dropped a further 8.8% in a month.

The recent uptick of 4.7% could be a positive sign of things to come, so let's take a look at historical fundamentals.

Check out our latest analysis for Guangzhou Baiyunshan Pharmaceutical Holdings

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 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.

During the unfortunate half decade during which the share price slipped, Guangzhou Baiyunshan Pharmaceutical Holdings actually saw its earnings per share (EPS) improve by 3.3% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.

By glancing at these numbers, we'd posit that the the market had expectations of much higher growth, five years ago. Having said that, we might get a better idea of what's going on with the stock by looking at other metrics.

We note that the dividend has remained healthy, so that wouldn't really explain the share price drop. While it's not completely obvious why the share price is down, a closer look at the company's history might help explain it.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

earnings-and-revenue-growth
SEHK:874 Earnings and Revenue Growth April 12th 2024

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. You can see what analysts are predicting for Guangzhou Baiyunshan Pharmaceutical Holdings in this interactive graph of future profit estimates.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Guangzhou Baiyunshan Pharmaceutical Holdings' TSR for the last 5 years was -41%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market lost about 7.9% in the twelve months, Guangzhou Baiyunshan Pharmaceutical Holdings shareholders did even worse, losing 23% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 7% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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 1 warning sign for Guangzhou Baiyunshan Pharmaceutical Holdings you should know about.

We will like Guangzhou Baiyunshan Pharmaceutical Holdings better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

About SEHK:874

Guangzhou Baiyunshan Pharmaceutical Holdings

Researches, develops, manufactures, and sells Chinese patent and Western medicines, chemical raw materials, natural and biological medicines, and intermediates of chemical raw materials in the People’s Republic of China and internationally.

Undervalued with excellent balance sheet and pays a dividend.