Earnings growth of 2.0% over 1 year hasn't been enough to translate into positive returns for Guangdong Construction Engineering Group (SZSE:002060) shareholders

Simply Wall St · 10/16 02:16

Guangdong Construction Engineering Group Co., Ltd. (SZSE:002060) shareholders should be happy to see the share price up 21% in the last month. But that doesn't change the reality of under-performance over the last twelve months. In fact the stock is down 29% in the last year, well below the market return.

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

View our latest analysis for Guangdong Construction Engineering Group

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Even though the Guangdong Construction Engineering Group share price is down over the year, its EPS actually improved. Of course, the situation might betray previous over-optimism about growth.

It seems quite likely that the market was expecting higher growth from the stock. But looking to other metrics might better explain the share price change.

We don't see any weakness in the Guangdong Construction Engineering Group's dividend so the steady payout can't really explain the share price drop. In fact, it seems more likely that the revenue fall of 11% in the last year is the worry. The market may be extrapolating the decline, leading to questions around the sustainability of the EPS.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth
SZSE:002060 Earnings and Revenue Growth October 16th 2024

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Guangdong Construction Engineering Group, it has a TSR of -26% for the last 1 year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

While the broader market lost about 0.6% in the twelve months, Guangdong Construction Engineering Group shareholders did even worse, losing 26% (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 6% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Guangdong Construction Engineering Group (at least 1 which is significant) , and understanding them should be part of your investment process.

Of course Guangdong Construction Engineering Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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