U.S. Markets close in 3 hrs 26 mins

Did Changing Sentiment Drive China XLX Fertiliser's (HKG:1866) Share Price Down By 20%?

Simply Wall St

China XLX Fertiliser Ltd. (HKG:1866) shareholders should be happy to see the share price up 13% in the last quarter. But that doesn't change the fact that the returns over the last year have been less than pleasing. The cold reality is that the stock has dropped 20% in one year, under-performing the market.

View our latest analysis for China XLX Fertiliser

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Unfortunately China XLX Fertiliser reported an EPS drop of 4.4% for the last year. This reduction in EPS is not as bad as the 20% share price fall. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock. The P/E ratio of 4.45 also points to the negative market sentiment.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

SEHK:1866 Past and Future Earnings, February 2nd 2020

This free interactive report on China XLX Fertiliser's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, China XLX Fertiliser's TSR for the last year was -16%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market lost about 5.2% in the twelve months, China XLX Fertiliser shareholders did even worse, losing 16% (even including dividends) . However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 6.3%, each year, over five years. 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. Case in point: We've spotted 2 warning signs for China XLX Fertiliser you should be aware of.

But note: China XLX Fertiliser 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 HK exchanges.

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.

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. Thank you for reading.