People's Insurance Company (Group) of China's (HKG:1339) three-year earnings growth trails the 50% YoY shareholder returns

Explore People's Insurance Company (Group) of China's Fair Values from the Community and select yours

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you buy shares in a really great company, you can more than double your money. For instance the The People's Insurance Company (Group) of China Limited (HKG:1339) share price is 184% higher than it was three years ago. Most would be happy with that. Also pleasing for shareholders was the 26% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 13% in 90 days).

Since it's been a strong week for People's Insurance Company (Group) of China shareholders, let's have a look at trend of the longer term fundamentals.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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).

During three years of share price growth, People's Insurance Company (Group) of China achieved compound earnings per share growth of 27% per year. This EPS growth is lower than the 42% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did three years ago. That's not necessarily surprising considering the three-year track record of earnings growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of People's Insurance Company (Group) of China, it has a TSR of 236% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that People's Insurance Company (Group) of China has rewarded shareholders with a total shareholder return of 149% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 28% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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 instance, we've identified 2 warning signs for People's Insurance Company (Group) of China (1 is potentially serious) that you should be aware of.

Of course People's Insurance Company (Group) of China 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 Hong Kong exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.