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China Coal Energy (HKG:1898) Sheds 3.7% This Week, as Yearly Returns Fall More in Line With Earnings Growth

Simply Wall St ·  {{timeTz}}

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. For instance the China Coal Energy Company Limited (HKG:1898) share price is 125% higher than it was three years ago. How nice for those who held the stock! It's also up 16% in about a month. We note that China Coal Energy reported its financial results recently; luckily, you can catch up on the latest revenue and profit numbers in our company report.

Although China Coal Energy has shed CN¥3.7b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for China Coal Energy

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

China Coal Energy was able to grow its EPS at 63% per year over three years, sending the share price higher. This EPS growth is higher than the 31% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat. This cautious sentiment is reflected in its (fairly low) P/E ratio of 4.54.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growthSEHK:1898 Earnings Per Share Growth September 14th 2022

We know that China Coal Energy has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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 and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of China Coal Energy, it has a TSR of 163% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that China Coal Energy shareholders have received a total shareholder return of 24% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 18%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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 instance, we've identified 2 warning signs for China Coal Energy (1 can't be ignored) that you should be aware of.

Of course China Coal Energy 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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