Reflecting on Binhai Investment's (HKG:2886) Share Price Returns Over The Last Five Years

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the main game is to find enough winners to more than offset the losers So we wouldn't blame long term Binhai Investment Company Limited (HKG:2886) shareholders for doubting their decision to hold, with the stock down 27% over a half decade. In contrast, the stock price has popped 9.2% in the last thirty days. However, this may be a matter of broader market optimism, since stocks are up 4.8% in the same time.

View our latest analysis for Binhai Investment

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Looking back five years, both Binhai Investment's share price and EPS declined; the latter at a rate of 7.1% per year. This change in EPS is reasonably close to the 6% average annual decrease in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Rather, the share price has approximately tracked EPS growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on Binhai Investment's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Binhai Investment the TSR over the last 5 years was -15%, 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

While the broader market gained around 23% in the last year, Binhai Investment shareholders lost 3.9% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 3% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Binhai Investment better, we need to consider many other factors. Even so, be aware that Binhai Investment is showing 4 warning signs in our investment analysis , and 1 of those can't be ignored...

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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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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. 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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