In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term Dongwu Cement International Limited (HKG:695) shareholders, since the share price is down 17% in the last three years, falling well short of the market return of around 31%. Furthermore, it's down 14% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 7.0% decline in the broader market, throughout the period.
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 five years of share price growth, Dongwu Cement International moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. So it's worth looking at other metrics to try to understand the share price move.
Given the healthiness of the dividend payments, we doubt that they've concerned the market. We like that Dongwu Cement International has actually grown its revenue over the last three years. If the company can keep growing revenue, there may be an opportunity for investors. You might have to dig deeper to understand the recent share price weakness.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Dongwu Cement International the TSR over the last 3 years was -13%, 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
It's nice to see that Dongwu Cement International shareholders have received a total shareholder return of 7.4% over the last year. And that does include the dividend. That's better than the annualised return of 1.7% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Dongwu Cement International by clicking this link.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK 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 firstname.lastname@example.org. 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.