Zhongmin Baihui Retail Group (SGX:5SR investor three-year losses grow to 28% as the stock sheds S$21m this past week

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3 days ago

For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Zhongmin Baihui Retail Group Ltd. (SGX:5SR) shareholders have had that experience, with the share price dropping 30% in three years, versus a market return of about 32%. And the share price decline continued over the last week, dropping some 18%.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
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To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
During five years of share price growth, Zhongmin Baihui Retail Group moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. So it's worth looking at other metrics to try to understand the share price move.
With a rather small yield of just 1.9% we doubt that the stock's share price is based on its dividend. Arguably the revenue decline of 4.5% per year has people thinking Zhongmin Baihui Retail Group is shrinking. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Zhongmin Baihui Retail Group, it has a TSR of -28% 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!
Investors in Zhongmin Baihui Retail Group had a tough year, with a total loss of 17% (including dividends), against a market gain of about 23%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 2% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Case in point: We've spotted 5 warning signs for Zhongmin Baihui Retail Group you should be aware of, and 3 of them make us uncomfortable.
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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 Singaporean exchanges.
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