China Merchants Port Holdings' (HKG:144) earnings growth rate lags the 30% return delivered to shareholders

Passive investing in index funds can generate returns that roughly match the overall market. But investors can boost returns by picking market-beating companies to own shares in. For example, the China Merchants Port Holdings Company Limited (HKG:144) share price is up 22% in the last 1 year, clearly besting the market return of around 10% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Having said that, the longer term returns aren't so impressive, with stock gaining just 4.0% in three years.

In light of the stock dropping 4.0% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive one-year return.

See our latest analysis for China Merchants Port Holdings

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...' 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.

China Merchants Port Holdings was able to grow EPS by 11% in the last twelve months. This EPS growth is significantly lower than the 22% increase in the share price. So it's fair to assume the market has a higher opinion of the business than it a year ago.

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

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 China Merchants Port Holdings' earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for China Merchants Port Holdings the TSR over the last 1 year was 30%, which is better than the share price return mentioned above. 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 Merchants Port Holdings shareholders have received a total shareholder return of 30% over one year. And that does include the dividend. That's better than the annualised return of 7% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 1 warning sign for China Merchants Port Holdings you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.