By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Offshore Oil Engineering Co.,Ltd (SHSE:600583) shareholders have seen the share price rise 29% over three years, well in excess of the market decline (23%, not including dividends).
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).
Offshore Oil EngineeringLtd was able to grow its EPS at 34% per year over three years, sending the share price higher. This EPS growth is higher than the 9% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Offshore Oil EngineeringLtd has grown profits over the years, but the future is more important for shareholders. This free interactive report on Offshore Oil EngineeringLtd's balance sheet strength is a great place to start, if you want to investigate the stock further.
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 Offshore Oil EngineeringLtd, it has a TSR of 36% 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
While it's certainly disappointing to see that Offshore Oil EngineeringLtd shares lost 8.2% throughout the year, that wasn't as bad as the market loss of 16%. Longer term investors wouldn't be so upset, since they would have made 2%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. 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. For instance, we've identified 1 warning sign for Offshore Oil EngineeringLtd that you should be aware of.
Of course Offshore Oil EngineeringLtd 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 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.