Buying a low-cost index fund will get you the average market return. But if you invest in individual stocks, some are likely to underperform. Unfortunately for shareholders, while the Lanzhou Zhuangyuan Pasture Co., Ltd. (HKG:1533) share price is up 24% in the last three years, that falls short of the market return. Disappointingly, the share price is down 23% in the last year.
View our latest analysis for Lanzhou Zhuangyuan Pasture
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the three years of share price growth, Lanzhou Zhuangyuan Pasture actually saw its earnings per share (EPS) drop 19% per year. This means it’s unlikely the market is judging the company based on earnings growth. Given this situation, it makes sense to look at other metrics too.
The modest 1.2% dividend yield is unlikely to be propping up the share price. We severely doubt anyone is particularly impressed with the modest 1.8% three-year revenue growth rate. So truth be told we can’t see an easy explanation for the share price action, but perhaps you can…
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
It’s probably worth noting that the CEO is paid less than the median at similar sized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. 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 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Lanzhou Zhuangyuan Pasture the TSR over the last 3 years was 29%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
The last twelve months weren’t great for Lanzhou Zhuangyuan Pasture shares, which performed worse than the market, costing holders 22%, including dividends. The market shed around 5.0%, no doubt weighing on the stock price. Investors are up over three years, booking 8.9% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it’s turns out to be an opportunity, but you really need to be sure that the quality is there. Before spending more time on Lanzhou Zhuangyuan Pasture it might be wise to click here to see if insiders have been buying or selling shares.