If you love investing in stocks you're bound to buy some losers. But the last three years have been particularly tough on longer term Ten Pao Group Holdings Limited (HKG:1979) shareholders. Regrettably, they have had to cope with a 62% drop in the share price over that period. And over the last year the share price fell 33%, so we doubt many shareholders are delighted. Shareholders have had an even rougher run lately, with the share price down 26% in the last 90 days. Of course, this share price action may well have been influenced by the 12% decline in the broader market, throughout the period.
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 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 three years that the share price fell, Ten Pao Group Holdings's earnings per share (EPS) dropped by 3.1% each year. The share price decline of 28% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 4.02.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Ten Pao Group Holdings has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue 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 and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Ten Pao Group Holdings the TSR over the last 3 years was -58%, 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
Ten Pao Group Holdings shareholders are down 29% for the year (even including dividends) , falling short of the market return. Meanwhile, the broader market slid about 15%, likely weighing on the stock. The three-year loss of 25% 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 Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 4 warning signs for Ten Pao Group Holdings you should be aware of, and 1 of them is significant.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.
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.
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