To justify the efforts to select individual stocks, it is worth striving to outperform the performance of the market index fund. But in any portfolio, the results for individual stocks will be mixed. At the moment, some shareholders may have doubts about their investment in Xinyuan Real Estate Co., Ltd. (NYSE: XIN), since the share price has dropped by 59% over the past five years. More recently, the share price fell another 17% in a month.
It is undeniable that markets are sometimes efficient, but prices do not always reflect the underlying performance of a business. One misguided but reasonable way to gauge how sentiment has changed around a company is to compare earnings per share (EPS) to the price of a stock.
During the five years during which the share price fell, Xinyuan Real Estate’s earnings per share (EPS) fell 11% annually. Readers should note that the share price fell faster than the share price per share, at a rate of 16% per year over this period. This means that the market is more cautious about business these days.
The company’s earnings per share (over time) is depicted in the image below (click to see exact numbers).
Before buying or selling stocks, we always recommend that you carefully study historical growth trends available here…
What about dividends?
In addition to measuring the return on the share price, investors must also consider total shareholder return (TSR). While the share price yield only reflects the change in the share price, the TSR includes the cost of dividends (assuming they have been reinvested) and the benefits of any discounted capital raising or spin-off. Thus, for companies that pay generous dividends, the TSR is often much higher than the return on the stock price. Note that for Xinyuan Real Estate, TSR was -43% over the past 5 years, which is better than the share price return mentioned above. Thus, the dividends paid by the company increased Total shareholder income.
Investors at Xinyuan Real Estate have had a tough year, with a total loss of 0.8% (including dividends) versus a market gain of around 37%. However, keep in mind that even the best stocks will sometimes lag behind the market for twelve months. However, the loss over the past year is not as large as the 7% per annum that investors have suffered over the past half decade. We will need to see some lasting improvements in key metrics before we can show much enthusiasm. It is always interesting to track the dynamics of stock prices over the long term. But in order to better understand Xinyuan Real Estate, we need to consider many other factors. For example, we have defined 5 warning signs for Xinyuan real estate (1 is a little worried) what you should be aware of.
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Please note that the market returns quoted in this article reflects the weighted average market returns for stocks that are currently listed on US exchanges.
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