Does Pingtan Marine Enterprise’s Share Price Gain of 73% Match Its Business Performance?

One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. For example, Pingtan Marine Enterprise Ltd. (NASDAQ:PME) shareholders have seen the share price rise 73% over three years, well in excess of the market return (41%, not including dividends).

View our latest analysis for Pingtan Marine Enterprise

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

During the three years of share price growth, Pingtan Marine Enterprise actually saw its earnings per share (EPS) drop 30% per year. This means it’s unlikely the market is judging the company based on earnings growth. Given this situation, it makes sense to look at other metrics too.

The modest 1.7% dividend yield is unlikely to be propping up the share price. Do you think that shareholders are buying for the 0.2% per annum revenue growth trend? We don’t. So truth be told we can’t see an easy explanation for the share price action, but perhaps you can…

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

NasdaqCM:PME Income Statement, March 6th 2019
NasdaqCM:PME Income Statement, March 6th 2019

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Pingtan Marine Enterprise

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 incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Pingtan Marine Enterprise’s TSR for the last 3 years was 83%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Investors in Pingtan Marine Enterprise had a tough year, with a total loss of 25% (including dividends), against a market gain of about 3.5%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9.4% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.

There are plenty of other companies that have insiders buying up shares. You probably do 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 US 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 editorial-team@simplywallst.com. 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.