It's easy to match the overall market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Unfortunately the Dongguan Rural Commercial Bank Co., Ltd. (HKG:9889) share price slid 10% over twelve months. That's disappointing when you consider the market declined 1.3%. We wouldn't rush to judgement on Dongguan Rural Commercial Bank because we don't have a long term history to look at.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for Dongguan Rural Commercial Bank
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...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Unfortunately Dongguan Rural Commercial Bank reported an EPS drop of 7.1% for the last year. This reduction in EPS is not as bad as the 10% share price fall. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock. The less favorable sentiment is reflected in its current P/E ratio of 6.76.
You can see how EPS has changed over time in the image below (click on the chart to see the exact 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. It might be well worthwhile taking a look at our free report on Dongguan Rural Commercial Bank's earnings, revenue and cash flow.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Dongguan Rural Commercial Bank's TSR for the last 1 year was -5.9%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
While Dongguan Rural Commercial Bank shareholders are down 5.9% for the year (even including dividends), the market itself is up 1.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 1.3% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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. Even so, be aware that Dongguan Rural Commercial Bank is showing 1 warning sign in our investment analysis , you should know about...
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong exchanges.
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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.