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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But in any portfolio, there will be mixed results between individual stocks. So we wouldn't blame long term China Everbright International Limited (HKG:257) shareholders for doubting their decision to hold, with the stock down 33% over a half decade. There was little comfort for shareholders in the last week as the price declined a further 1.5%.
See our latest analysis for China Everbright International
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the unfortunate half decade during which the share price slipped, China Everbright International actually saw its earnings per share (EPS) improve by 21% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past. Due to the lack of correlation between the EPS growth and the falling share price, it's worth taking a look at other metrics to try to understand the share price movement.
Revenue is actually up 34% over the time period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
China Everbright International is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for China Everbright International in this interactive graph of future profit estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, China Everbright International's TSR for the last 5 years was -24%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.