China Tobacco International (HK)'s (HKG:6055) earnings growth rate lags the 61% CAGR delivered to shareholders

It might be of some concern to shareholders to see the China Tobacco International (HK) Company Limited (HKG:6055) share price down 13% in the last month. But that doesn't change the fact that the returns over the last three years have been very strong. The share price marched upwards over that time, and is now 293% higher than it was. It's not uncommon to see a share price retrace a bit, after a big gain. If the business can perform well for years to come, then the recent drop could be an opportunity.

While the stock has fallen 5.2% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During three years of share price growth, China Tobacco International (HK) achieved compound earnings per share growth of 44% per year. In comparison, the 58% per year gain in the share price outpaces the EPS growth. So it's fair to assume the market has a higher opinion of the business than it did three years ago. That's not necessarily surprising considering the three-year track record of earnings growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that China Tobacco International (HK) has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at China Tobacco International (HK)'s financial health with this free report on its balance sheet.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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, China Tobacco International (HK)'s TSR for the last 3 years was 320%, 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

We're pleased to report that China Tobacco International (HK) shareholders have received a total shareholder return of 46% over one year. That's including the dividend. That's better than the annualised return of 21% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Is China Tobacco International (HK) cheap compared to other companies? These 3 valuation measures might help you decide.

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 Hong Kong exchanges.

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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.