Beijing Tongrentang (SHSE:600085) sheds 11% this week, as yearly returns fall more in line with earnings growth

Simply Wall St · 10/14 22:19

It's been a soft week for Beijing Tongrentang Co., Ltd (SHSE:600085) shares, which are down 11%. On the bright side the returns have been quite good over the last half decade. After all, the share price is up a market-beating 40% in that time. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 27% decline over the last twelve months.

Although Beijing Tongrentang has shed CN¥6.1b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for Beijing Tongrentang

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).

During five years of share price growth, Beijing Tongrentang achieved compound earnings per share (EPS) growth of 8.1% per year. So the EPS growth rate is rather close to the annualized share price gain of 7% per year. That suggests that the market sentiment around the company hasn't changed much over that time. In fact, the share price seems to largely reflect the EPS growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
SHSE:600085 Earnings Per Share Growth October 14th 2024

It might be well worthwhile taking a look at our free report on Beijing Tongrentang's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Beijing Tongrentang, it has a TSR of 51% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market lost about 0.6% in the twelve months, Beijing Tongrentang shareholders did even worse, losing 25% (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 9% 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. It's always interesting to track share price performance over the longer term. But to understand Beijing Tongrentang better, we need to consider many other factors. To that end, you should learn about the 2 warning signs we've spotted with Beijing Tongrentang (including 1 which doesn't sit too well with us) .

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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