Despite the downward trend in earnings at Industrial Bank (SHSE:601166) the stock climbs 7.3%, bringing one-year gains to 31%

Simply Wall St · 10/16 22:39

The simplest way to invest in stocks is to buy exchange traded funds. But you can significantly boost your returns by picking above-average stocks. For example, the Industrial Bank Co., Ltd. (SHSE:601166) share price is up 23% in the last 1 year, clearly besting the market decline of around 1.6% (not including dividends). That's a solid performance by our standards! However, the longer term returns haven't been so impressive, with the stock up just 4.2% in the last three years.

The past week has proven to be lucrative for Industrial Bank investors, so let's see if fundamentals drove the company's one-year performance.

View our latest analysis for Industrial Bank

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the last year, Industrial Bank actually saw its earnings per share drop 14%.

So we don't think that investors are paying too much attention to EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.

We haven't seen Industrial Bank increase dividend payments yet, so the yield probably hasn't helped drive the share higher. Revenue actually dropped 13% over last year. Usually that correlates with a lower share price, but let's face it, the gyrations of the market are sometimes only as clear as mud.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
SHSE:601166 Earnings and Revenue Growth October 16th 2024

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. So we recommend checking out this free report showing consensus forecasts

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Industrial Bank's TSR for the last 1 year was 31%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Industrial Bank shareholders have received a total shareholder return of 31% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 7% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Take risks, for example - Industrial Bank 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.