For many, the main point of investing is to generate higher returns than the overall market. But the main game is to find enough winners to more than offset the losers So we wouldn’t blame long term CK Hutchison Holdings Limited (HKG:1) shareholders for doubting their decision to hold, with the stock down 33% over a half decade. The silver lining is that the stock is up 1.8% in about a week.
Check out our latest analysis for CK Hutchison Holdings
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.
During the five years over which the share price declined, CK Hutchison Holdings’s earnings per share (EPS) dropped by 5.8% each year. This reduction in EPS is less than the 7.7% annual reduction in the share price. This implies that the market was previously too optimistic about the stock. The low P/E ratio of 8.68 further reflects this reticence.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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 incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, CK Hutchison Holdings’s TSR for the last 5 years was 41%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We regret to report that CK Hutchison Holdings shareholders are down 9.2% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 2.4%. 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. Longer term investors wouldn’t be so upset, since they would have made 7.1%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before forming an opinion on CK Hutchison Holdings you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.