While not a mind-blowing move, it is good to see that the China Everbright Water Limited (SGX:U9E) share price has gained 14% in the last three months. But that cannot eclipse the less-than-impressive returns over the last three years. Truth be told the share price declined 24% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the unfortunate three years of share price decline, China Everbright Water actually saw its earnings per share (EPS) improve by 17% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed. It’s worth taking a look at other metrics, because the EPS growth doesn’t seem to match with the falling share price.
Revenue is actually up 33% over the three years, so the share price drop doesn’t seem to hinge on revenue, either. It’s probably worht worth investigating China Everbright Water further; while we may be missing something on this analysis, there might also be an opportunity.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
We know that China Everbright Water has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think China Everbright Water will earn in the future (free profit forecasts)
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for China Everbright Water the TSR over the last 3 years was -21%, 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
The last twelve months weren’t great for China Everbright Water shares, which performed worse than the market, costing holders 14%, including dividends. Meanwhile, the broader market slid about 5.0%, likely weighing on the stock. The three-year loss of 7.6% per year isn’t as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Warren Buffett famously said he likes to ‘buy when there is blood on the streets’, he also focusses on high quality stocks with solid prospects. Before deciding if you like the current share price, check how China Everbright Water scores on these 3 valuation metrics.
But note: China Everbright Water 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 SG 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 email@example.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. Thank you for reading.