It hasn’t been the best quarter for Huaxi Holdings Company Limited (HKG:1689) shareholders, since the share price has fallen 23% in that time. But in stark contrast, the returns over the last half decade have impressed. In fact, the share price is 144% higher today. To some, the recent pullback wouldn’t be surprising after such a fast rise. The more important question is whether the stock is too cheap or too expensive today.
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Huaxi Holdings actually saw its EPS drop 11% per year. Essentially, it doesn’t seem likely that investors are focused on EPS. Because earnings per share don’t seem to match up with the share price, we’ll take a look at other metrics instead.
The modest 1.9% dividend yield is unlikely to be propping up the share price. It is not great to see that revenue has dropped by 5.1% per year over five years. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.
The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.
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 Huaxi Holdings’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). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Huaxi Holdings’s TSR for the last 5 years was 191%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We regret to report that Huaxi Holdings shareholders are down 4.4% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 2.9%. 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. Longer term investors wouldn’t be so upset, since they would have made 24%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Is Huaxi Holdings cheap compared to other companies? These 3 valuation measures might help you decide.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.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 email@example.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.