The five-year underlying earnings growth at Autobio Diagnostics (SHSE:603658) is promising, but the shareholders are still in the red over that time

Simply Wall St · 10/14 23:44

Autobio Diagnostics Co., Ltd. (SHSE:603658) shareholders should be happy to see the share price up 16% in the last month. But over the last half decade, the stock has not performed well. In fact, the share price is down 40%, which falls well short of the return you could get by buying an index fund.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

Check out our latest analysis for Autobio Diagnostics

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 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).

While the share price declined over five years, Autobio Diagnostics actually managed to increase EPS by an average of 14% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

Due to the lack of correlation between the EPS growth and the falling share price, it's worth taking a look at other metrics to try to understand the share price movement.

Revenue is actually up 14% over the time period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
SHSE:603658 Earnings and Revenue Growth October 14th 2024

Autobio Diagnostics is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Autobio Diagnostics in this interactive graph of future profit estimates.

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. We note that for Autobio Diagnostics the TSR over the last 5 years was -36%, 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

It's nice to see that Autobio Diagnostics shareholders have received a total shareholder return of 3.2% over the last year. Of course, that includes the dividend. That certainly beats the loss of about 6% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. It's always interesting to track share price performance over the longer term. But to understand Autobio Diagnostics better, we need to consider many other factors. Take risks, for example - Autobio Diagnostics has 1 warning sign we think you should be aware of.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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