These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But investors can boost returns by picking market-beating companies to own shares in. For example, the China Art Financial Holdings Limited (HKG:1572) share price is up 66% in the last year, clearly besting than the market return of around -4.2% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! China Art Financial Holdings hasn't been listed for long, so it's still not clear if it is a long term winner.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 last year, China Art Financial Holdings actually saw its earnings per share drop 15%. This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We doubt the modest 0.7% dividend yield is doing much to support the share price. Unfortunately China Art Financial Holdings's fell 7.5% over twelve months. So the fundamental metrics don't provide an obvious explanation for the share price gain.
Depicted in the graphic below, you'll see revenue and earnings over time. If you want more detail, you can click on the chart itself.
This free interactive report on China Art Financial Holdings's balance sheet strength is a great place to start, if you want to investigate the stock further.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for China Art Financial Holdings the TSR over the last year was 70%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's nice to see that China Art Financial Holdings shareholders have gained 70% over the last year, including dividends. The more recent returns haven't been as impressive as the longer term returns, coming in at just 8.5%. It seems likely the market is waiting on fundamental developments with the business before pushing the share price higher (or lower). Before forming an opinion on China Art Financial Holdings you might want to consider these 3 valuation metrics.
Of course China Art Financial 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.
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.