Air China Limited (HKG:753) shareholders should be happy to see the share price up 18% in the last month. But that doesn't help the fact that the three year return is less impressive. Truth be told the share price declined 37% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).
Air China saw its share price decline over the three years in which its EPS also dropped, falling to a loss. Since the company has fallen to a loss making position, it's hard to compare the change in EPS with the share price change. But it's safe to say we'd generally expect the share price to be lower as a result!
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on Air China's 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. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Air China the TSR over the last 3 years was -34%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Air China provided a TSR of 12% over the last twelve months. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 7% over half a decade It is possible that returns will improve along with the business fundamentals. 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 Air China is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...
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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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Air China Limited, together with its subsidiaries, provides air passenger, air cargo, and airline-related services in Mainland China, Hong Kong, Macau, Taiwan, Europe, North America, Japan, Korea, the Asia Pacific, and internationally.
Exceptional growth potential and good value.