The simplest way to invest in stocks is to buy exchange traded funds. But investors can boost returns by picking market-beating companies to own shares in. For example, the China Agri-Industries Holdings Limited (HKG:606) share price is up 12% in the last year, clearly besting the market return of around -0.8% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! However, the stock hasn't done so well in the longer term, with the stock only up 3.3% in three years.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
Over the last twelve months, China Agri-Industries Holdings actually shrank its EPS by 34%.
This means it's unlikely the market is judging the company based on earnings growth. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.
We doubt the modest 1.0% dividend yield is doing much to support the share price. However the year on year revenue growth of 24% would help. Many businesses do go through a faze where they have to forgo some profits to drive business development, and sometimes its for the best.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Take a more thorough look at China Agri-Industries Holdings's financial health with this free report on its balance sheet.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between China Agri-Industries Holdings's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that China Agri-Industries Holdings's TSR of 14% over the last year is better than the share price return.
A Different Perspective
It's nice to see that China Agri-Industries Holdings shareholders have received a total shareholder return of 14% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 3.6%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Before deciding if you like the current share price, check how China Agri-Industries Holdings scores on these 3 valuation metrics.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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