In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term Qingdao Rural Commercial Bank Co., Ltd. (SZSE:002958) shareholders, since the share price is down 33% in the last three years, falling well short of the market return of around 21%.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
See our latest analysis for Qingdao Rural Commercial Bank
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).
Although the share price is down over three years, Qingdao Rural Commercial Bank actually managed to grow EPS by 1.8% per year in that time. 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.
It's pretty reasonable to suspect the market was previously to bullish on the stock, and has since moderated expectations. However, taking a look at other business metrics might shed a bit more light on the share price action.
With revenue flat over three years, it seems unlikely that the share price is reflecting the top line. There doesn't seem to be any clear correlation between the fundamental business metrics and the share price. That could mean that the stock was previously overrated, or it could spell opportunity now.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
If you are thinking of buying or selling Qingdao Rural Commercial Bank stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Qingdao Rural Commercial Bank, it has a TSR of -26% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Qingdao Rural Commercial Bank shareholders are down 8.6% for the year, (even including dividends), but the broader market is up 9.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, the longer term story isn't pretty, with investment losses running at 8% per year over three years. We'd need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Qingdao Rural Commercial Bank is showing 2 warning signs in our investment analysis , you should know about...
We will like Qingdao Rural Commercial Bank better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese 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.