Pulling back 9.5% this week, Sichuan Furong Technology's SHSE:603327) three-year decline in earnings may be coming into investors focus

Simply Wall St · 10/16 00:42

By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Sichuan Furong Technology Co., Ltd. (SHSE:603327) shareholders have seen the share price rise 65% over three years, well in excess of the market decline (21%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 15%, including dividends.

Since the long term performance has been good but there's been a recent pullback of 9.5%, let's check if the fundamentals match the share price.

View our latest analysis for Sichuan Furong Technology

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over the last three years, Sichuan Furong Technology failed to grow earnings per share, which fell 9.6% (annualized).

Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Therefore, we think it's worth considering other metrics as well.

We severely doubt anyone is particularly impressed with the modest 1.5% three-year revenue growth rate. So truth be told we can't see an easy explanation for the share price action, but perhaps you can...

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
SHSE:603327 Earnings and Revenue Growth October 16th 2024

This free interactive report on Sichuan Furong Technology's balance sheet strength is a great place to start, if you want to investigate the stock further.

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 Sichuan Furong Technology the TSR over the last 3 years was 78%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Sichuan Furong Technology has rewarded shareholders with a total shareholder return of 15% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 0.6% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Sichuan Furong Technology better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Sichuan Furong Technology (of which 2 shouldn't be ignored!) you should know about.

But note: Sichuan Furong Technology 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 Chinese exchanges.