Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Dr. Wu Skincare Co., Ltd. (GTSM:6523) shareholders have had that experience, with the share price dropping 59% in three years, versus a market return of about 35%. The silver lining is that the stock is up 1.5% in about a week.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 three years that the share price fell, Dr. Wu Skincare’s earnings per share (EPS) dropped by 11% each year. This reduction in EPS is slower than the 26% annual reduction in the share price. So it seems the market was too confident about the business, in the past.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
This free interactive report on Dr. Wu Skincare’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Dr. Wu Skincare, it has a TSR of -49% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Dr. Wu Skincare shareholders gained a total return of 10% during the year. But that was short of the market average. But at least that’s still a gain! Over five years the TSR has been a reduction of 7.4% per year, over five years. So this might be a sign the business has turned its fortunes around. 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. Take risks, for example – Dr. Wu Skincare has 5 warning signs (and 1 which is a bit unpleasant) we think you should know about.
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 TW 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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