Investing in stocks inevitably means buying into some companies that perform poorly. But the last three years have been particularly tough on longer term China Resources Medical Holdings Company Limited (HKG:1515) shareholders. Unfortunately, they have held through a 59% decline in the share price in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 22% lower in that time.
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 unfortunate three years of share price decline, China Resources Medical Holdings actually saw its earnings per share (EPS) improve by 11% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed. 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.
Revenue is actually up 13% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching China Resources Medical Holdings more closely, as sometimes stocks fall unfairly. This could present an opportunity.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that China Resources Medical Holdings 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 Resources Medical Holdings will earn in the future (free profit forecasts).
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between China Resources Medical Holdings's total shareholder return (TSR) and its share price change, which we've covered above. 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. Its history of dividend payouts mean that China Resources Medical Holdings's TSR, which was a 57% drop over the last 3 years, was not as bad as the share price return.
A Different Perspective
We regret to report that China Resources Medical Holdings shareholders are down 21% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 3.3%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 15% over the last half decade. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. If you would like to research China Resources Medical Holdings in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
We will like China Resources Medical Holdings better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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.