While it may not be enough for some shareholders, we think it is good to see the CITIC Resources Holdings Limited (HKG:1205) share price up 26% in a single quarter. But if you look at the last five years the returns have not been good. You would have done a lot better buying an index fund, since the stock has dropped 43% in that half decade.
On a more encouraging note the company has added HK$432m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.
See our latest analysis for CITIC Resources Holdings
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 unfortunate half decade during which the share price slipped, CITIC Resources Holdings actually saw its earnings per share (EPS) improve by 29% 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). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
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.
We note that the dividend has remained healthy, so that wouldn't really explain the share price drop. It's not immediately clear to us why the stock price is down but further research might provide some answers.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
SEHK:1205 Earnings and Revenue Growth January 20th 2023
Take a more thorough look at CITIC Resources Holdings' financial health with this free report on its balance sheet.
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 spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for CITIC Resources Holdings the TSR over the last 5 years was -33%, 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
We're pleased to report that CITIC Resources Holdings shareholders have received a total shareholder return of 7.3% over one year. That's including the dividend. There's no doubt those recent returns are much better than the TSR loss of 6% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 1 warning sign for CITIC Resources Holdings that you should be aware of before investing here.
Of course CITIC Resources Holdings may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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