Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Spare a thought for those who held China Everbright Water Limited (SGX:U9E) for five whole years - as the share price tanked 76%. And we doubt long term believers are the only worried holders, since the stock price has declined 38% over the last twelve months. There was little comfort for shareholders in the last week as the price declined a further 17%.
View our latest analysis for China Everbright Water
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
While the share price declined over five years, China Everbright Water actually managed to increase EPS by an average of 15% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Alternatively, growth expectations may have been unreasonable in the past.
Due to the lack of correlation between the EPS growth and the falling share price, it's worth taking a look at other metrics to try to understand the share price movement.
We note that the dividend has remained healthy, so that wouldn't really explain the share price drop. While it's not completely obvious why the share price is down, a closer look at the company's history might help explain it.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that China Everbright Water has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at China Everbright Water's financial health with this free report on its balance sheet.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between China Everbright Water's total shareholder return (TSR) and its share price change, which we've covered above. 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. Dividends have been really beneficial for China Everbright Water shareholders, and that cash payout explains why its total shareholder loss of 74%, over the last 5 years, isn't as bad as the share price return.
A Different Perspective
We regret to report that China Everbright Water shareholders are down 36% for the year (even including dividends) . Unfortunately, that's worse than the broader market decline of 23%. 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 24% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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 China Everbright Water is showing 4 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...
But note: China Everbright Water may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SG exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.
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. Thank you for reading.
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March 19, 2020 at 11:45AM
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Easy Come, Easy Go: How China Everbright Water (SGX:U9E) Shareholders Got Unlucky And Saw 76% Of Their Cash Evaporate - Yahoo Finance
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