Orient Overseas (International)'s (HKG:316) earnings growth rate lags the 42% CAGR delivered to shareholders
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Orient Overseas (International) Limited (HKG:316) share price is up 87% in the last 5 years, clearly besting the market return of around 11% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 40%, including dividends.
Since the long term performance has been good but there's been a recent pullback of 4.9%, let's check if the fundamentals match the share price.
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.
Over half a decade, Orient Overseas (International) managed to grow its earnings per share at 79% a year. This EPS growth is higher than the 13% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 4.00.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Orient Overseas (International) has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of Orient Overseas (International), it has a TSR of 487% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's good to see that Orient Overseas (International) has rewarded shareholders with a total shareholder return of 40% in the last twelve months. And that does include the dividend. Having said that, the five-year TSR of 42% a year, is even better. 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 Orient Overseas (International) is showing 2 warning signs in our investment analysis , and 1 of those can't be ignored...
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Hong Kong 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.