Investors in Vanke Overseas Investment Holding (HKG:1036) from five years ago are still down 7.4%, even after 16% gain this past week
In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But even the best stock picker will only win with some selections. At this point some shareholders may be questioning their investment in Vanke Overseas Investment Holding Company Limited (HKG:1036), since the last five years saw the share price fall 25%.
While the stock has risen 16% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.
Vanke Overseas Investment Holding isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually desire strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.
Over five years, Vanke Overseas Investment Holding grew its revenue at 6.7% per year. That's a pretty good rate for a long time period. We doubt many shareholders are ok with the fact the share price has fallen 5% each year for half a decade. Clearly, the expectations from back then have not been satisfied. The lesson is that if you buy shares in a money losing company you could end up losing money.
The image below shows how earnings and revenue have 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. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of Vanke Overseas Investment Holding'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. 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. As it happens, Vanke Overseas Investment Holding's TSR for the last 5 years was -7.4%, 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
Vanke Overseas Investment Holding shareholders gained a total return of 27% during the year. But that return falls short of the market. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 1.4% endured over half a decade. It could well be that the business is stabilizing. 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 example, we've discovered 3 warning signs for Vanke Overseas Investment Holding (1 makes us a bit uncomfortable!) that you should be aware of before investing here.
If you are like me, then you will not want to miss this free list of undervalued small caps 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 Hong Kong exchanges.
Valuation is complex, but we're here to simplify it.
Discover if Vanke Overseas Investment Holding might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.