As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that’s been the case for longer term NetDragon Websoft Holdings Limited (HKG:777) shareholders, since the share price is down 35% in the last three years, falling well short of the market return of around 11%. Unhappily, the share price slid 1.7% in the last week.
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
NetDragon Websoft Holdings became profitable within the last five years. We would usually expect to see the share price rise as a result. So it’s worth looking at other metrics to try to understand the share price move.
With a rather small yield of just 1.6% we doubt that the stock’s share price is based on its dividend. Revenue is actually up 28% over the three years, so the share price drop doesn’t seem to hinge on revenue, either. It’s probably worth investigating NetDragon Websoft Holdings further; while we may be missing something on this analysis, there might also be an opportunity.
The graphic below depicts how revenue has changed over time.
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. This free report showing analyst forecasts should help you form a view on NetDragon Websoft Holdings
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of NetDragon Websoft Holdings, it has a TSR of -32% 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!
A Different Perspective
We’re pleased to report that NetDragon Websoft Holdings shareholders have received a total shareholder return of 16% over one year. And that does include the dividend. That’s better than the annualised return of 7.0% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. If you would like to research NetDragon Websoft Holdings in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: NetDragon Websoft Holdings may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.