The one-year underlying earnings growth at Cathay Media and Education Group (HKG:1981) is promising, but the shareholders are still in the red over that time

By
Simply Wall St
Published
November 30, 2021
SEHK:1981
Source: Shutterstock

The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Cathay Media and Education Group Inc. (HKG:1981) shareholders over the last year, as the share price declined 37%. That's well below the market decline of 1.8%. Cathay Media and Education Group hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. And the share price decline continued over the last week, dropping some 11%.

With the stock having lost 11% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

View our latest analysis for Cathay Media and Education Group

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Even though the Cathay Media and Education Group share price is down over the year, its EPS actually improved. It's quite possible that growth expectations may have been unreasonable in the past.

It's fair to say that the share price does not seem to be reflecting the EPS growth. So it's well worth checking out some other metrics, too.

Cathay Media and Education Group's revenue is actually up 20% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
SEHK:1981 Earnings and Revenue Growth November 30th 2021

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So we recommend checking out this free report showing consensus forecasts

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, Cathay Media and Education Group's TSR for the last 1 year was -35%, 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

Cathay Media and Education Group shareholders are down 35% for the year (even including dividends), even worse than the market loss of 1.8%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. With the stock down 9.6% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. It's always interesting to track share price performance over the longer term. But to understand Cathay Media and Education Group better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Cathay Media and Education Group (of which 1 can't be ignored!) you should know about.

There are plenty of other companies that have insiders buying up shares. You probably do 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.

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