Even the best stock pickers will make plenty of bad investments. And unfortunately for China Yongda Automobiles Services Holdings Limited (HKG:3669) shareholders, the stock is a lot lower today than it was a year ago. The share price has slid 56% in that time. At least the damage isn’t so bad if you look at the last three years, since the stock is down 17% in that time. Furthermore, it’s down 33% in about a quarter. That’s not much fun for holders. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
Given the past week has been tough on shareholders, let’s investigate the fundamentals and see what we can learn.
Though if you’re not interested in researching what drove 3669’s performance, we have a free list of interesting investing ideas to potentially inspire your next investment!
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 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).
Unfortunately China Yongda Automobiles Services Holdings reported an EPS drop of 15% for the last year. This reduction in EPS is not as bad as the 56% share price fall. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock. The less favorable sentiment is reflected in its current P/E ratio of 4.77.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It’s good to see that there was some significant insider buying in the last three months. That’s a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, China Yongda Automobiles Services Holdings’ TSR for the last 1 year was -53%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market lost about 20% in the twelve months, China Yongda Automobiles Services Holdings shareholders did even worse, losing 53% (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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 8% over the last half decade. We realise that Baron Rothschild has said investors should “buy when there is blood on the streets”, but we caution that investors should first be sure they are buying a high quality business. 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 1 warning sign with China Yongda Automobiles Services Holdings , and understanding them should be part of your investment process.
China Yongda Automobiles Services Holdings is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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