It is a pleasure to report that the Dawnrays Pharmaceutical (Holdings) Limited (HKG:2348) is up 40% in the last quarter. But that doesn't change the fact that the returns over the last five years have been less than pleasing. After all, the share price is down 49% in that time, significantly under-performing the market.
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.
During the five years over which the share price declined, Dawnrays Pharmaceutical (Holdings)'s earnings per share (EPS) dropped by 1.2% each year. This reduction in EPS is less than the 13% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The low P/E ratio of 7.14 further reflects this reticence.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Dawnrays Pharmaceutical (Holdings)'s earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Dawnrays Pharmaceutical (Holdings)'s TSR for the last 5 years was -35%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Dawnrays Pharmaceutical (Holdings) shareholders are down 9.4% for the year (even including dividends), but the market itself is up 22%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6% over the last half decade. 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 for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Dawnrays Pharmaceutical (Holdings) (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.
Dawnrays Pharmaceutical (Holdings) is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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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Dawnrays Pharmaceutical (Holdings)
Dawnrays Pharmaceutical (Holdings) Limited, an investment holding company, develops, manufactures, and sells non-patented pharmaceutical medicines in Mainland China and internationally.
Excellent balance sheet with solid track record.