The main aim of stock picking is to find the market-beating stocks. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Sino-Ocean Group Holding Limited (HKG:3377), since the last five years saw the share price fall 41%. And some of the more recent buyers are probably worried, too, with the stock falling 25% in the last year. There was little comfort for shareholders in the last week as the price declined a further 4.7%.
There is no denying that markets are sometimes efficient, but prices do not always reflect 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.
During the five years over which the share price declined, Sino-Ocean Group Holding's earnings per share (EPS) dropped by 9.7% each year. In this case, the EPS change is really very close to the share price drop of 9.9% a year. This suggests that market participants have not changed their view of the company all that much. So it's fair to say the share price has been responding to changes in EPS.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Sino-Ocean Group Holding has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Sino-Ocean Group Holding stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Sino-Ocean Group Holding's TSR for the last 5 years was -22%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the broader market lost about 5.2% in the twelve months, Sino-Ocean Group Holding shareholders did even worse, losing 20% (even including dividends) . Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4.8% 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. 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. For instance, we've identified 4 warning signs for Sino-Ocean Group Holding (1 is concerning) that you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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 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.
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