For many, the main point of investing is to generate higher returns than the overall market. But even the best stock picker will only win with some selections. So we wouldn't blame long term Agricultural Bank of China Limited (HKG:1288) shareholders for doubting their decision to hold, with the stock down 10% over a half decade. The good news is that the stock is up 3.6% in the last week.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
During the unfortunate half decade during which the share price slipped, Agricultural Bank of China actually saw its earnings per share (EPS) improve by 1.0% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
With EPS gaining and a declining share price, one would suggest the market is cooling on its view of the company. That said, if EPS continues to increase, it seems very likely the share price will get a boost, in the long term.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Agricultural Bank of China the TSR over the last 5 years was 20%, 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
Agricultural Bank of China shareholders are up 7.6% for the year (even including dividends) . But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 3.7% over half a decade This suggests the company might be improving over time. Importantly, we haven't analysed Agricultural Bank of China's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.
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.