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When we invest, we’re generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Xinyi Solar Holdings Limited (HKG:968) shareholders have enjoyed a 68% share price rise over the last half decade, well in excess of the market return of around 38%. However, more recent returns haven’t been as impressive as that, with the stock returning just 11% in the last year, including dividends.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over half a decade, Xinyi Solar Holdings managed to grow its earnings per share at 55% a year. This EPS growth is higher than the 11% average annual increase in the share price. So it seems the market isn’t so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 11.41.
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. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Xinyi Solar Holdings’s TSR for the last 5 years was 105%, 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 Xinyi Solar Holdings shareholders have received a total shareholder return of 11% over one year. And that does include the dividend. However, the TSR over five years, coming in at 15% per year, is even more impressive. The data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies 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 HK exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.