Earnings growth of 0.5% over 3 years hasn't been enough to translate into positive returns for Johnson Electric Holdings (HKG:179) shareholders

Simply Wall St · 10/17 22:01

Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term Johnson Electric Holdings Limited (HKG:179) shareholders have had that experience, with the share price dropping 37% in three years, versus a market decline of about 4.4%. On top of that, the share price is down 6.0% in the last week.

With the stock having lost 6.0% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

View our latest analysis for Johnson Electric Holdings

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 unfortunate three years of share price decline, Johnson Electric Holdings actually saw its earnings per share (EPS) improve by 1.4% 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). Or else the company was over-hyped in the past, and so its growth has disappointed.

It looks to us like the market was probably too optimistic around growth three years ago. Looking to other metrics might better explain the share price change.

We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. It's good to see that Johnson Electric Holdings has increased its revenue over the last three years. But it's not clear to us why the share price is down. It might be worth diving deeper into the fundamentals, lest an opportunity goes begging.

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

earnings-and-revenue-growth
SEHK:179 Earnings and Revenue Growth October 17th 2024

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Johnson Electric Holdings in this interactive graph of future profit estimates.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Johnson Electric Holdings, it has a TSR of -29% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Johnson Electric Holdings shareholders gained a total return of 8.5% during the year. But that return falls short of the market. But at least that's still a gain! Over five years the TSR has been a reduction of 2% per year, over five years. So this might be a sign the business has turned its fortunes around. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for Johnson Electric Holdings (1 is a bit concerning!) that you should be aware of before investing here.

Johnson Electric Holdings is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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