When we invest, we're generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Nine Dragons Paper (Holdings) Limited (HKG:2689) share price is up 43% in the last 5 years, clearly besting the market return of around -1.3% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 8.9% in the last year , including dividends .
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Over half a decade, Nine Dragons Paper (Holdings) managed to grow its earnings per share at 17% a year. The EPS growth is more impressive than the yearly share price gain of 7.5% over the same period. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 8.87.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Nine Dragons Paper (Holdings) has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
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 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 Nine Dragons Paper (Holdings) the TSR over the last 5 years was 71%, 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 Nine Dragons Paper (Holdings) shareholders have received a total shareholder return of 8.9% over the last year. And that does include the dividend. Having said that, the five-year TSR of 11% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand Nine Dragons Paper (Holdings) better, we need to consider many other factors. Take risks, for example - Nine Dragons Paper (Holdings) has 3 warning signs we think you should be aware of.
Of course Nine Dragons Paper (Holdings) may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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 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.
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.