By buying an index fund, you can roughly match the market return with ease. But if you choose individual stocks with prowess, you can make superior returns. For example, the Kowloon Development Company Limited (HKG:34) share price is up 23% in the last three years, clearly besting than the market return of around 1.6% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 15% in the last year, including dividends.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
During three years of share price growth, Kowloon Development achieved compound earnings per share growth of 42% per year. This EPS growth is higher than the 7.2% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. We’d venture the lowish P/E ratio of 3.67 also reflects the negative sentiment around the stock.
It might be well worthwhile taking a look at our free report on Kowloon Development’s earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Kowloon Development, it has a TSR of 56% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s nice to see that Kowloon Development shareholders have received a total shareholder return of 15% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 7.3% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Keeping this in mind, a solid next step might be to take a look at Kowloon Development’s dividend track record. This free interactive graph is a great place to start.
We will like Kowloon Development 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.
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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.