The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. For example, the China Travel International Investment Hong Kong Limited (HKG:308) share price is down 50% in the last year. That falls noticeably short of the market return of around -3.5%. To make matters worse, the returns over three years have also been really disappointing (the share price is 47% lower than three years ago). Shareholders have had an even rougher run lately, with the share price down 25% in the last 90 days. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
Unhappily, China Travel International Investment Hong Kong had to report a 37% decline in EPS over the last year. This reduction in EPS is not as bad as the 50% share price fall. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock. The P/E ratio of 9.08 also points to the negative market sentiment.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into China Travel International Investment Hong Kong's key metrics by checking this interactive graph of China Travel International Investment Hong Kong's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between China Travel International Investment Hong Kong's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. China Travel International Investment Hong Kong's TSR of was a loss of 48% for the year. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
While the broader market lost about 3.5% in the twelve months, China Travel International Investment Hong Kong shareholders did even worse, losing 48% (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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 9.2% per year over five years. 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. Keeping this in mind, a solid next step might be to take a look at China Travel International Investment Hong Kong's dividend track record. This free interactive graph is a great place to start.
We will like China Travel International Investment Hong Kong 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 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.