While not a mind-blowing move, it is good to see that the Qingdao Rural Commercial Bank Co., Ltd. (SZSE:002958) share price has gained 13% in the last three months. 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 51%, which falls well short of the return you could get by buying an index fund.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the five years over which the share price declined, Qingdao Rural Commercial Bank's earnings per share (EPS) dropped by 2.9% each year. This reduction in EPS is less than the 13% annual reduction in the share price. So it seems the market was too confident about the business, in the past. The less favorable sentiment is reflected in its current P/E ratio of 6.93.
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?
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. We note that for Qingdao Rural Commercial Bank the TSR over the last 5 years was -44%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that Qingdao Rural Commercial Bank shareholders have received a total shareholder return of 23% over one year. Of course, that includes the dividend. That certainly beats the loss of about 8% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. It's always interesting to track share price performance over the longer term. But to understand Qingdao Rural Commercial Bank better, we need to consider many other factors. For instance, we've identified 2 warning signs for Qingdao Rural Commercial Bank (1 doesn't sit too well with us) that you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).
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.
