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Most people feel a little frustrated if a stock they own goes down in price. But often it is not a reflection of the fundamental business performance. The Kunming Dianchi Water Treatment Co., Ltd. (HKG:3768) is down 13% over a year, but the total shareholder return is -6.3% once you include the dividend. That's better than the market which returned -13% over the last year. Kunming Dianchi Water Treatment may have better days ahead, of course; we've only looked at a one year period.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 twelve months during which the Kunming Dianchi Water Treatment share price fell, it actually saw its earnings per share (EPS) improve by 2.5%. Of course, the situation might betray previous over-optimism about growth. It seems quite likely that the market was expecting higher growth from the stock. But other metrics might shed some light on why the share price is down.
We don't see any weakness in the Kunming Dianchi Water Treatment's dividend so the steady payout can't really explain the share price drop. The revenue trend doesn't seem to explain why the share price is down. Unless, of course, the market was expecting a revenue uptick.
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.
It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on Kunming Dianchi Water Treatment's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, Kunming Dianchi Water Treatment's TSR for the last year was -6.3%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While they no doubt would have preferred make a profit, at least Kunming Dianchi Water Treatment shareholders didn't do too badly in the last year. Their loss of 6.3%, including dividends, actually beat the broader market, which lost around 13%. Unfortunately for shareholders, the share price momentum hasn't improved much with the stock down 4.0% in around 90 days. This doesn't look great to us, but it is possible that the market is over-reacting to prior disappointment. Keeping this in mind, a solid next step might be to take a look at Kunming Dianchi Water Treatment's dividend track record. This free interactive graph is a great place to start.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.