Shareholders Of Cathay Real Estate DevelopmentLtd (TPE:2501) Must Be Happy With Their 50% Return

Low-cost index funds make it easy to achieve average market returns. But across the board there are plenty of stocks that underperform the market. Unfortunately for shareholders, while the Cathay Real Estate Development Co.,Ltd. (TPE:2501) share price is up 22% in the last three years, that falls short of the market return. Unfortunately, the share price has fallen 11% over twelve months.

See our latest analysis for Cathay Real Estate DevelopmentLtd

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over the last three years, Cathay Real Estate DevelopmentLtd failed to grow earnings per share, which fell 14% (annualized).

So we doubt that the market is looking to EPS for its main judge of the company's value. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the dividend payments explain the share price rise, since we don't see any improvement in that regard. Many investors probably think the fact that Cathay Real Estate DevelopmentLtd's revenue has been declining at a rate of 6.0% per year is a real negative. And to be fair, we don't see how EPS can grow sustainably without a boost to revenue.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 Cathay Real Estate DevelopmentLtd the TSR over the last 3 years was 50%, 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

Cathay Real Estate DevelopmentLtd shareholders are down 6.6% for the year (even including dividends), but the market itself is up 37%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 11% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 Cathay Real Estate DevelopmentLtd is showing 3 warning signs in our investment analysis , and 2 of those shouldn't be ignored...

But note: Cathay Real Estate DevelopmentLtd may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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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