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Many investors define successful investing as beating the market average over the long term. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that’s been the case for longer term China Everbright Water Limited (SGX:U9E) shareholders, since the share price is down 48% in the last three years, falling well short of the market return of around 23%. On top of that, the share price has dropped a further 17% in a month.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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.
During the unfortunate three years of share price decline, China Everbright Water actually saw its earnings per share (EPS) improve by 19% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed. It’s worth taking a look at other metrics, because the EPS growth doesn’t seem to match with the falling share price.
Revenue is actually up 32% over the three years, so the share price drop doesn’t seem to hinge on revenue, either. It’s probably worht worth investigating China Everbright Water further; while we may be missing something on this analysis, there might also be an opportunity.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
We know that China Everbright Water has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on China Everbright Water
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 Everbright Water the TSR over the last 3 years was -45%, 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
China Everbright Water shareholders are down 19% for the year (even including dividends), but the broader market is up 1.0%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 18% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. Before forming an opinion on China Everbright Water you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.
If you are like me, then you will 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 SG 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.