The total return for CIMC Enric Holdings (HKG:3899) investors has risen faster than earnings growth over the last five years

Simply Wall St · 10/14 22:46

Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. To wit, the CIMC Enric Holdings share price has climbed 54% in five years, easily topping the market return of 1.0% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 1.2%, including dividends.

Although CIMC Enric Holdings has shed HK$1.4b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

View our latest analysis for CIMC Enric Holdings

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

During five years of share price growth, CIMC Enric Holdings achieved compound earnings per share (EPS) growth of 2.9% per year. This EPS growth is slower than the share price growth of 9% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
SEHK:3899 Earnings Per Share Growth October 14th 2024

This free interactive report on CIMC Enric Holdings' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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 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. As it happens, CIMC Enric Holdings' TSR for the last 5 years was 85%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

CIMC Enric Holdings shareholders gained a total return of 1.2% during the year. Unfortunately this falls short of the market return. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 13% over five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for CIMC Enric Holdings you should know about.

But note: CIMC Enric Holdings 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 Hong Kong exchanges.