Reflecting on Zhongliang Holdings Group's (HKG:2772) Share Price Returns Over The Last Year

It's easy to match the overall market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Zhongliang Holdings Group Company Limited (HKG:2772) shareholders over the last year, as the share price declined 17%. That's disappointing when you consider the market returned 25%. We wouldn't rush to judgement on Zhongliang Holdings Group because we don't have a long term history to look at. The good news is that the stock is up 2.3% in the last week.

View our latest analysis for Zhongliang Holdings Group

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the unfortunate twelve months during which the Zhongliang Holdings Group share price fell, it actually saw its earnings per share (EPS) improve by 30%. Of course, the situation might betray previous over-optimism about growth.

It's fair to say that the share price does not seem to be reflecting the EPS growth. So it's easy to justify a look at some other metrics.

Zhongliang Holdings Group's dividend seems healthy to us, so we doubt that the yield is a concern for the market. From what we can see, revenue is pretty flat, so that doesn't really explain the share price drop. Unless, of course, the market was expecting a revenue uptick.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We know that Zhongliang Holdings Group has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Zhongliang Holdings Group in this interactive graph of future profit estimates.

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 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. As it happens, Zhongliang Holdings Group's TSR for the last year was -9.5%, 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

Given that the market gained 25% in the last year, Zhongliang Holdings Group shareholders might be miffed that they lost 9.5% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 7.2% 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. 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. Even so, be aware that Zhongliang Holdings Group is showing 3 warning signs in our investment analysis , and 2 of those can't be ignored...

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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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