Great Wall Motor Company Limited (HKG:2333) shareholders should be happy to see the share price up 14% in the last month. But that doesn't change the fact that the returns over the last five years have been less than pleasing. In fact, the share price is down 47%, which falls well short of the return you could get by buying an index fund.
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Looking back five years, both Great Wall Motor's share price and EPS declined; the latter at a rate of 18% per year. This fall in the EPS is worse than the 12% compound annual share price fall. So investors might expect EPS to bounce back -- or they may have previously foreseen the EPS decline.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Great Wall Motor's TSR for the last 5 years was -35%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We're pleased to report that Great Wall Motor shareholders have received a total shareholder return of 32% over one year. Of course, that includes the dividend. Notably the five-year annualised TSR loss of 8.3% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Keeping this in mind, a solid next step might be to take a look at Great Wall Motor's dividend track record. This free interactive graph is a great place to start.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.