Ideally, your overall portfolio should beat the market average. But every investor is virtually certain to have both outperforming and underperforming stocks. At this point, some shareholders may question their investment in Chongqing Rural Commercial Bank Co., Ltd. (HKG: 3618), since the past five years have seen the share price drop 34%. The falls have accelerated recently, with the share price falling 15% in the past three months. Of course, this change in the share price may well have been influenced by the 13% drop in the broad market throughout the period.
So let’s see if the long-term performance of the business has been in line with the progress of the underlying business.
See our latest review for Chongqing Rural Commercial Bank
To paraphrase Benjamin Graham: In the short term the market is a voting machine, but in the long term it is a weighing machine. An imperfect but straightforward way to consider how a company’s market perception has changed is to compare the evolution of earnings per share (EPS) with the movement of the share price.
In the five years that the stock price fell, Chongqing Rural Commercial Bank’s earnings per share (EPS) fell 1.0% every year. Note that the share price fell faster than EPS, at a rate of 8% per year, over the period. This implies that the market is more cautious of the business these days. The low P / E ratio of 3.23 still reflects this reluctance.
You can see below how the EPS has evolved over time (find out the exact values by clicking on the image).
We are happy to report that the CEO is paid more modestly than most CEOs of companies with similar capitalization. But while CEO compensation is still worth checking out, the really important question is whether the company can increase profits in the future. Dive Deeper into Profits by viewing this interactive Chongqing Rural Commercial Bank Profits, Income and Cash Flow Chart.
What about dividends?
When considering investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. TSR is a yield calculation that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of any discounted capital increase and spinoff. So, for companies that pay a generous dividend, the TSR is often much higher than the return on the share price. In the case of Chongqing Rural Commercial Bank, it has a TSR of -11% for the past 5 years. This exceeds the return on its share price that we mentioned earlier. This is largely the result of his dividend payments!
A different perspective
Chongqing Rural Commercial Bank shareholders are down 5.3% for the year (including dividends), but the market itself is up 5.3%. Even good stock prices sometimes drop, but we want to see improvements in the fundamentals of a company, before we get too interested. Unfortunately, last year’s performance crowns a poor run, with shareholders facing a total loss of 2% per year over five years. We are aware that Baron Rothschild has said that investors should “buy when there is blood in the streets”, but we caution that investors must first ensure that they are buying a high quality business. I find it very interesting to look at the stock price over the long term as an indicator of company performance. But to really get an overview, we have to take other information into account as well. For example, we have identified 2 warning signs for Chongqing Rural Commercial Bank (1 makes us a little uncomfortable) that you should be aware of.
If you are like me then you not want to miss it free list of growing companies that insiders buy.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently trading on the Hong Kong stock exchanges.
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