E-Commodities Holdings’ (HKG:1733) three-year total shareholder returns outpace the underlying earnings growth

While E-Commodities Holdings Limited (HKG:1733) shareholders are probably generally happy, the stock hasn’t had particularly good run recently, with the share price falling 25% in the last quarter. But that doesn’t change the fact that the returns over the last three years have been spectacular. Indeed, the share price is up a whopping 514% in that time. As long term investors the recent fall doesn’t detract all that much from the longer term story. Only time will tell if there is still too much optimism currently reflected in the share price. It really delights us to see such great share price performance for investors.

Although E-Commodities Holdings has shed HK$415m from its market cap this week, let’s take a look at its longer term fundamental trends and see if they’ve driven returns.

See our latest analysis for E-Commodities Holdings

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

E-Commodities Holdings was able to grow its EPS at 84% per year over three years, sending the share price higher. This EPS growth is remarkably close to the 83% average annual increase in the share price. This suggests that sentiment and expectations have not changed drastically. Rather, the share price has approximately tracked EPS growth.

The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for E-Commodities Holdings the TSR over the last 3 years was 690%, which is better than the share price return mentioned above. And there’s no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market lost about 0.5% in the twelve months, E-Commodities Holdings shareholders did even worse, losing 40% (even including dividends). 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. On the bright side, long term shareholders have made money, with a gain of 21% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 2 warning signs with E-Commodities Holdings , and understanding them should be part of your investment process.

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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong 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.