It's nice to see the Suntront Technology Co., Ltd. (SZSE:300259) share price up 13% in a week. But that cannot eclipse the less-than-impressive returns over the last three years. After all, the share price is down 41% in the last three years, significantly under-performing the market.
While the stock has risen 13% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.
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).
During the three years that the share price fell, Suntront Technology's earnings per share (EPS) dropped by 25% each year. In comparison the 16% compound annual share price decline isn't as bad as the EPS drop-off. So, despite the prior disappointment, shareholders must have some confidence the situation will improve, longer term.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Suntront Technology, it has a TSR of -34% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
We regret to report that Suntront Technology shareholders are down 21% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 6.0%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.0% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Suntront Technology (of which 1 makes us a bit uncomfortable!) you should know about.
If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are 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.