April 21, 2024

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Beijing New Building Materials (SZSE:000786) shareholders have endured a 41% loss from investing in the stock three years ago

4 min read

While not a mind-blowing move, it is good to see that the Beijing New Building Materials Public Limited Company (SZSE:000786) share price has gained 22% in the last three months. But that cannot eclipse the less-than-impressive returns over the last three years. In fact, the share price is down 44% in the last three years, falling well short of the market return.

So let’s have a look and see if the longer term performance of the company has been in line with the underlying business’ progress.

See our latest analysis for Beijing New Building Materials

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. 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.

Although the share price is down over three years, Beijing New Building Materials actually managed to grow EPS by 11% per year in that time. 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). Alternatively, growth expectations may have been unreasonable in the past.

Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.

Revenue is actually up 6.6% over the three years, so the share price drop doesn’t seem to hinge on revenue, either. It’s probably worth investigating Beijing New Building Materials further; while we may be missing something on this analysis, there might also be an opportunity.

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
SZSE:000786 Earnings and Revenue Growth February 28th 2024

Beijing New Building Materials is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Beijing New Building Materials in this interactive graph of future profit estimates.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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, Beijing New Building Materials’ TSR for the last 3 years was -41%, 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

While it’s never nice to take a loss, Beijing New Building Materials shareholders can take comfort that , including dividends,their trailing twelve month loss of 3.8% wasn’t as bad as the market loss of around 16%. Longer term investors wouldn’t be so upset, since they would have made 9%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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. Case in point: We’ve spotted 1 warning sign for Beijing New Building Materials you should be aware of.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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

Valuation is complex, but we’re helping make it simple.

Find out whether Beijing New Building Materials is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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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