By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the China Haisum Engineering Co., Ltd. (SZSE:002116) share price is up 53% in the last three years, clearly besting the market decline of around 20% (not including dividends).
In light of the stock dropping 8.7% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
During three years of share price growth, China Haisum Engineering moved from a loss to profitability. So we would expect a higher share price over the period.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that China Haisum Engineering has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on China Haisum Engineering'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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for China Haisum Engineering the TSR over the last 3 years was 60%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
While it's certainly disappointing to see that China Haisum Engineering shares lost 6.7% throughout the year, that wasn't as bad as the market loss of 13%. Given the total loss of 0.8% per year over five years, it seems returns have deteriorated in the last twelve months. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. It's always interesting to track share price performance over the longer term. But to understand China Haisum Engineering better, we need to consider many other factors. Take risks, for example - China Haisum Engineering has 4 warning signs we think you should be aware of.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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.