The nature of investing is that you win some, and you lose some. And there's no doubt that China Southern Airlines Company Limited (HKG:1055) stock has had a really bad year. The share price has slid 52% in that time. We note that it has not been easy for shareholders over three years, either; the share price is down 38% in that time. Shareholders have had an even rougher run lately, with the share price down 37% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 16% in the same timeframe.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).
Unhappily, China Southern Airlines had to report a 20% decline in EPS over the last year. This reduction in EPS is not as bad as the 52% share price fall. This suggests the EPS fall has made some shareholders are more nervous about the business.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into China Southern Airlines's key metrics by checking this interactive graph of China Southern Airlines's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between China Southern Airlines's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Its history of dividend payouts mean that China Southern Airlines's TSR, which was a 52% drop over the last year, was not as bad as the share price return.
A Different Perspective
We regret to report that China Southern Airlines shareholders are down 52% for the year (even including dividends) . Unfortunately, that's worse than the broader market decline of 17%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% over the last half decade. 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. Take risks, for example - China Southern Airlines has 4 warning signs (and 1 which is significant) we think you should know about.
But note: China Southern Airlines 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 HK exchanges.
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.
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