Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by Guangshen Railway Company Limited (HKG:525) shareholders over the last year, as the share price declined 37%. That’s disappointing when you consider the market returned -8.5%. Longer term shareholders haven’t suffered as badly, since the stock is down a comparatively less painful 2.7% in three years. And the share price decline continued over the last week, dropping some 7.0%.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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 twelve months during which the Guangshen Railway share price fell, it actually saw its earnings per share (EPS) improve by 15%. Of course, the situation might betray previous over-optimism about growth. The divergence between the EPS and the share price is quite notable, during the year. So it’s well worth checking out some other metrics, too.
Guangshen Railway’s revenue is actually up 11% over the last year. Since we can’t easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free report showing analyst forecasts should help you form a view on Guangshen Railway
What about the Total Shareholder Return (TSR)?
We’ve already covered Guangshen Railway’s share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Its history of dividend payouts mean that Guangshen Railway’s TSR, which was a 36% drop over the last year, was not as bad as the share price return.
A Different Perspective
While the broader market lost about 8.5% in the twelve months, Guangshen Railway shareholders did even worse, losing 36% (even including dividends). Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 1.2% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before deciding if you like the current share price, check how Guangshen Railway scores on these 3 valuation metrics.
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.
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 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. Thank you for reading.