Dairy Farm International Holdings Ltd’s Stock Price Is Up 20% In 1 Year: Here’s Why

Dairy Farm International Holdings Ltd (SGX: D01) is a bricks-and-mortar retailer with more than 6,500 outlets scattered across Asia.

Its stores are in a variety of formats, including supermarkets, hypermarkets, convenience stores, pharmacies, and more. In Singapore, some of Dairy Farm’s retail stores include  Cold StorageGiant Hypermarket, and 7-Eleven.

Over the last 12 months, the company’s stock price has increased by 20%. What may have caused this?

Reasons for a gain

There are many reasons why a stock’s price would rise.

But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related. The former deals with how a stock’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the stock’s profit.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

The case with Dairy Farm

In Dairy Farm’s case, both forces appear to be at work. Let me explain. Dairy Farm’s latest earnings, released in late July 2016, was for the first six months of 2016. In the earnings release, we can learn a few things about the company’s business:

  1. Revenue had declined by 1% year-on-year to US$5.6 billion. On a constant currency basis, it would have been up by 2% instead.
  2. Underlying earnings per share (EPS) stepped up by 3% from the first-half of 2015. On a constant currency basis, underlying EPS had grown by 5%.
  3. The 3% growth in underlying earnings per share is not fantastic, but it is a welcome change from the 14% decline in underlying profit the company experienced in 2015.

So, there has clearly been a turnaround of late in Dairy Farm’s financial performance.

But, there is also a big difference between the earnings growth last reported by the company (3%) and the company’s stock price gains over the past year (20%) – this is where investors’ mood comes into play. It appears that investors are beginning to feel more optimistic about Dairy Farm’s prospects after its latest earnings.

Investors may want to keep an eye on Dairy Farm’s next few earnings announcements to have a better idea on whether its fortunes have really turned around.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Dairy Farm International. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.