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Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in China Animation Characters Company Limited (HKG:1566) have tasted that bitter downside in the last year, as the share price dropped 20%. That’s disappointing when you consider the market returned -5.0%. Zooming out, the stock is down 20% in the last three years. Furthermore, it’s down 12% in about a quarter. That’s not much fun for holders.
View our latest analysis for China Animation Characters
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.
Unhappily, China Animation Characters had to report a 41% decline in EPS over the last year. The share price fall of 20% isn’t as bad as the reduction in earnings per share. So despite the weak per-share profits, some investors are probably relieved the situation wasn’t more difficult. With a P/E ratio of 47.12, it’s fair to say the market an EPS rebound on the cards.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It’s good to see that there was some significant insider buying in the last three months. That’s a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Dive deeper into the earnings by checking this interactive graph of China Animation Characters’s earnings, revenue and cash flow.
A Different Perspective
The last twelve months weren’t great for China Animation Characters shares, which performed worse than the market, costing holders 19%, including dividends. The market shed around 5.0%, no doubt weighing on the stock price. The three-year loss of 6.5% 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. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.