While Bin Chuan Enterprise Co., Ltd. (GTSM:1569) shareholders are probably generally happy, the stock hasn’t had particularly good run recently, with the share price falling 13% in the last quarter. But that doesn’t change the fact that the returns over the last five years have been very strong. It’s fair to say most would be happy with 196% the gain in that time. So while it’s never fun to see a share price fall, it’s important to look at a longer time horizon. Of course, that doesn’t necessarily mean it’s cheap now.
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.
During the five years of share price growth, Bin Chuan Enterprise moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. In fact, the Bin Chuan Enterprise stock price is 24% lower in the last three years. In the same period, EPS is up 3.1% per year. So there seems to be a mismatch between the positive EPS growth and the change in the share price, which is down -9% per year.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Bin Chuan Enterprise’s earnings, revenue and cash flow 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. As it happens, Bin Chuan Enterprise’s TSR for the last 5 years was 220%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Bin Chuan Enterprise shareholders have received returns of 40% over twelve months (even including dividends), which isn’t far from the general market return. Most would be happy with a gain, and it helps that the year’s return is actually better than the average return over five years, which was 26%. Even if the share price growth slows down from here, there’s a good chance that this is business worth watching in the long term. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Bin Chuan Enterprise is showing 2 warning signs in our investment analysis , and 1 of those shouldn’t be ignored…
We will like Bin Chuan Enterprise better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on TW exchanges.
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