The simplest way to invest in stocks is to buy exchange traded funds. But investors can boost returns by picking market-beating companies to own shares in. To wit, the China Tobacco International (HK) Company Limited (HKG:6055) share price is 18% higher than it was a year ago, much better than the market return of around 9.1% (not including dividends) in the same period. That's a solid performance by our standards! China Tobacco International (HK) hasn't been listed for long, so it's still not clear if it is a long term winner.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.
Over the last twelve months, China Tobacco International (HK) actually shrank its EPS by 32%.
So we don't think that investors are paying too much attention to EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We doubt the modest 0.2% dividend yield is doing much to support the share price. China Tobacco International (HK)'s revenue actually dropped 24% over last year. So the fundamental metrics don't provide an obvious explanation for the share price gain.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
China Tobacco International (HK) shareholders should be happy with the total gain of 18% over the last twelve months, including dividends. The more recent returns haven't been as impressive as the longer term returns, coming in at just 1.3%. It seems likely the market is waiting on fundamental developments with the business before pushing the share price higher (or lower). Before deciding if you like the current share price, check how China Tobacco International (HK) scores on these 3 valuation metrics.
But note: China Tobacco International (HK) may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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.
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