We think intelligent long term investing is the way to go. But along the way some stocks are going to perform badly. For example, after five long years the Churchill China plc (LON:CHH) share price is a whole 57% lower. That is extremely sub-optimal, to say the least. We also note that the stock has performed poorly over the last year, with the share price down 33%. Furthermore, it’s down 18% in about a quarter. That’s not much fun for holders.
With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Check out our latest analysis for Churchill China
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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 five years over which the share price declined, Churchill China’s earnings per share (EPS) dropped by 0.4% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 16% per year, over the period. This implies that the market was previously too optimistic about the stock. The less favorable sentiment is reflected in its current P/E ratio of 10.89.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It is of course excellent to see how Churchill China has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Churchill China the TSR over the last 5 years was -54%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
Churchill China shareholders are down 30% for the year (even including dividends), but the market itself is up 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 9% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Even so, be aware that Churchill China is showing 2 warning signs in our investment analysis , and 1 of those is significant…
