Stock Analysis

What Type Of Returns Would PICC Property and Casualty's(HKG:2328) Shareholders Have Earned If They Purchased Their SharesThree Years Ago?

SEHK:2328
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As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term PICC Property and Casualty Company Limited (HKG:2328) shareholders, since the share price is down 47% in the last three years, falling well short of the market decline of around 5.1%. And over the last year the share price fell 34%, so we doubt many shareholders are delighted. Unhappily, the share price slid 3.1% in the last week.

See our latest analysis for PICC Property and Casualty

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Although the share price is down over three years, PICC Property and Casualty actually managed to grow EPS by 2.0% 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.

It looks to us like the market was probably too optimistic around growth three years ago. But it's possible a look at other metrics will be enlightening.

We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. We like that PICC Property and Casualty has actually grown 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 company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
SEHK:2328 Earnings and Revenue Growth January 24th 2021

PICC Property and Casualty is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for PICC Property and Casualty in this interactive graph of future profit estimates.

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 PICC Property and Casualty the TSR over the last 3 years was -39%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Investors in PICC Property and Casualty had a tough year, with a total loss of 29% (including dividends), against a market gain of about 20%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% 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. 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. Case in point: We've spotted 1 warning sign for PICC Property and Casualty you should be aware of.

Of course PICC Property and Casualty 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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