Imagine Owning BAIC Motor (HKG:1958) While The Price Tanked 69%
Generally speaking long term investing is the way to go. But along the way some stocks are going to perform badly. Zooming in on an example, the BAIC Motor Corporation Limited (HKG:1958) share price dropped 69% in the last half decade. That is extremely sub-optimal, to say the least. And some of the more recent buyers are probably worried, too, with the stock falling 24% in the last year. The falls have accelerated recently, with the share price down 19% in the last three months. Of course, this share price action may well have been influenced by the 10% decline in the broader market, throughout the period.
View our latest analysis for BAIC Motor
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. 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.
Looking back five years, both BAIC Motor's share price and EPS declined; the latter at a rate of 11% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 21% per year, over the period. So it seems the market was too confident about the business, in the past. The low P/E ratio of 9.00 further reflects this reticence.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on BAIC Motor'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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for BAIC Motor the TSR over the last 5 years was -63%, 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
We regret to report that BAIC Motor shareholders are down 20% for the year (even including dividends) . Unfortunately, that's worse than the broader market decline of 7.6%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 18% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should be aware of the 2 warning signs we've spotted with BAIC Motor .
We will like BAIC Motor better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.
