These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But if you pick the right individual stocks, you could make more than that. To wit, the China Modern Dairy Holdings Ltd. (HKG:1117) share price is 76% higher than it was a year ago, much better than the market return of around 26% (not including dividends) in the same period. So that should have shareholders smiling. On the other hand, longer term shareholders have had a tougher run, with the stock falling 11% in three years.
The past week has proven to be lucrative for China Modern Dairy Holdings investors, so let's see if fundamentals drove the company's one-year performance.
Check out our latest analysis for China Modern Dairy Holdings
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over the last twelve months China Modern Dairy Holdings went from profitable to unprofitable. While this may prove temporary, we'd consider it a negative, so we would not have expected to see the share price up. It may be that the company has done well on other metrics.
We doubt the modest 0.4% dividend yield is doing much to support the share price. Revenue was pretty flat year on year, but maybe a closer look at the data can explain the market optimism.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
This free interactive report on China Modern Dairy Holdings' balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
It's good to see that China Modern Dairy Holdings has rewarded shareholders with a total shareholder return of 77% in the last twelve months. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 10% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. For example, we've discovered 1 warning sign for China Modern Dairy Holdings that you should be aware of before investing here.
For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.
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.