Investing in stocks comes with the risk that the share price will fall. Anyone who held Golden Ponder Holdings Limited (HKG:1783) over the last year knows what a loser feels like. The share price has slid 54% in that time. Golden Ponder Holdings may have better days ahead, of course; we've only looked at a one year period. Furthermore, it's down 31% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 16% decline in the broader market, throughout the period.
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.
Unfortunately Golden Ponder Holdings reported an EPS drop of 41% for the last year. The share price decline of 54% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago. The P/E ratio of 8.69 also points to the negative market sentiment.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
We doubt Golden Ponder Holdings shareholders are happy with the loss of 54% over twelve months. That falls short of the market, which lost 17%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. With the stock down 31% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Golden Ponder Holdings is showing 4 warning signs in our investment analysis , and 1 of those is concerning...
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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