The simplest way to invest in stocks is to buy exchange traded funds. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Chongqing Department Store Co.,Ltd. (SHSE:600729) share price is 21% higher than it was a year ago, much better than the market decline of around 19% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! However, the stock hasn't done so well in the longer term, with the stock only up 6.7% in three years.
Since the stock has added CN¥601m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
Check out our latest analysis for Chongqing Department StoreLtd
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 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).
Chongqing Department StoreLtd was able to grow EPS by 32% in the last twelve months. This EPS growth is significantly higher than the 21% increase in the share price. Therefore, it seems the market isn't as excited about Chongqing Department StoreLtd as it was before. This could be an opportunity. The caution is also evident in the lowish P/E ratio of 9.94.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Chongqing Department StoreLtd has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Chongqing Department StoreLtd's TSR for the last 1 year was 24%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's good to see that Chongqing Department StoreLtd has rewarded shareholders with a total shareholder return of 24% in the last twelve months. And that does include the dividend. That's better than the annualised return of 8% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Case in point: We've spotted 1 warning sign for Chongqing Department StoreLtd you should be aware of.
But note: Chongqing Department StoreLtd may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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.