Pacific Online's (HKG:543) earnings trajectory could turn positive as the stock hikes 11% this past week
This week we saw the Pacific Online Limited (HKG:543) share price climb by 11%. But that can't change the reality that over the longer term (five years), the returns have been really quite dismal. The share price has failed to impress anyone , down a sizable 73% during that time. Some might say the recent bounce is to be expected after such a bad drop. Of course, this could be the start of a turnaround.
On a more encouraging note the company has added HK$40m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).
During the five years over which the share price declined, Pacific Online's earnings per share (EPS) dropped by 26% each year. Notably, the share price has fallen at 23% per year, fairly close to the change in the EPS. This implies that the market has had a fairly steady view of the stock. So it's fair to say the share price has been responding to changes in EPS.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It might be well worthwhile taking a look at our free report on Pacific Online's earnings, revenue and cash flow.
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 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, Pacific Online's TSR for the last 5 years 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
Pacific Online shareholders are up 28% for the year (even including dividends). But that was short of the market average. But at least that's still a gain! Over five years the TSR has been a reduction of 9% per year, over five years. So this might be a sign the business has turned its fortunes around. It's always interesting to track share price performance over the longer term. But to understand Pacific Online better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Pacific Online (at least 2 which are a bit unpleasant) , and understanding them should be part of your investment process.
If you are like me, then you will not want to miss this free list of undervalued small caps 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 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.