Volatility 101: Should China ZhengTong Auto Services Holdings (HKG:1728) Shares Have Dropped 46%?
The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. That downside risk was realized by China ZhengTong Auto Services Holdings Limited (HKG:1728) shareholders over the last year, as the share price declined 46%. That falls noticeably short of the market return of around 0.7%. At least the damage isn't so bad if you look at the last three years, since the stock is down 15% in that time. Unfortunately the share price momentum is still quite negative, with prices down 10% in thirty days. However, we note the price may have been impacted by the broader market, which is down 4.8% in the same time period.
Check out our latest analysis for China ZhengTong Auto Services Holdings
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Unhappily, China ZhengTong Auto Services Holdings had to report a 32% decline in EPS over the last year. The share price decline of 46% is actually more than the EPS drop. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock. The P/E ratio of 5.29 also points to the negative market sentiment.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on China ZhengTong Auto Services Holdings's earnings, revenue and cash flow.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for China ZhengTong Auto Services Holdings the TSR over the last year was -42%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
China ZhengTong Auto Services Holdings shareholders are down 42% for the year (even including dividends) , but the market itself is up 0.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6.7% over the last half decade. We realise that Buffett 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. 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. For example, we've discovered 4 warning signs for China ZhengTong Auto Services Holdings (1 is significant!) that you should be aware of before investing here.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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 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.
