One simple way to benefit from the stock market is to buy an index fund. But if you choose individual stocks with prowess, you can make superior returns. For example, YGM Trading Limited (HKG:375) shareholders have seen the share price rise 81% over three years, well in excess of the market return (16%, not including dividends). On the other hand, the returns haven’t been quite so good recently, with shareholders up just 24%, including dividends.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
YGM Trading became profitable within the last three years. That would generally be considered a positive, so we’d expect the share price to be up.
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. We note that for YGM Trading the TSR over the last 3 years was 206%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s nice to see that YGM Trading shareholders have received a total shareholder return of 24% over the last year. That’s including the dividend. There’s no doubt those recent returns are much better than the TSR loss of 4.6% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. Keeping this in mind, a solid next step might be to take a look at YGM Trading’s dividend track record. This free interactive graph is a great place to start.
We will like YGM Trading better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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.