Optimism for Tianneng Power International (HKG:819) has grown this past week, despite three-year decline in earnings
Tianneng Power International (HKG:819) has seen a 23% share price increase over the past year, despite a 9.6% decline in earnings per share over three years. The company's revenue has also decreased by 5.7% annually. While the total shareholder return (TSR) stands at 64% over three years, reflecting dividends, the recent performance still lags behind market averages. Investors are left questioning the correlation between share price and fundamental data, indicating a need for further analysis of the company's financial health.
Low-cost index funds make it easy to achieve average market returns. But across the board there are plenty of stocks that underperform the market. For example, the Tianneng Power International Limited (HKG:819) share price return of 40% over three years lags the market return in the same period. On the other hand, the more recent gain of 23% over a year is certainly pleasing.
Since it's been a strong week for Tianneng Power International shareholders, let's have a look at trend of the longer term fundamentals.
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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Over the last three years, Tianneng Power International failed to grow earnings per share, which fell 9.6% (annualized).
Thus, it seems unlikely that the market is focussed on EPS growth at the moment. 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.
Languishing at just 1.8%, we doubt the dividend is doing much to prop up the share price. You can only imagine how long term shareholders feel about the declining revenue trend (slipping at 5.7% per year). The only thing that's clear is there is low correlation between Tianneng Power International's share price and its historic fundamental data. Further research may be required!
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Take a more thorough look at Tianneng Power International's financial health with this free report on its balance sheet.
What About Dividends?
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Tianneng Power International, it has a TSR of 64% for the last 3 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
Tianneng Power International shareholders are up 27% for the year (even including dividends). But that return falls short of the market. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 3% endured over half a decade. It could well be that the business is stabilizing. Is Tianneng Power International cheap compared to other companies? These 3 valuation measures might help you decide.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.
