It’s easy to match the overall market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in SH Group (Holdings) Limited (HKG:1637) have tasted that bitter downside in the last year, as the share price dropped 30%. That contrasts poorly with the market return of -5.4%. We wouldn’t rush to judgement on SH Group (Holdings) because we don’t have a long term history to look at. Furthermore, it’s down 15% in about a quarter. That’s not much fun for holders. Of course, this share price action may well have been influenced by the 8.4% decline in the broader market, throughout the period.
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. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
Unhappily, SH Group (Holdings) had to report a 36% decline in EPS over the last year. We note that the 30% share price drop is very close to the EPS drop. Given the lower EPS we might have expected investors to lose confidence in the stock, but that doesn’t seemed to have happened. Rather, the share price has approximately tracked EPS growth.
The company’s earnings per share (over time) are depicted in the image below.
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for SH Group (Holdings) the TSR over the last year was -28%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
We doubt SH Group (Holdings) shareholders are happy with the loss of 28% over twelve months (even including dividends) . That falls short of the market, which lost 5.4%. There’s no doubt that’s a disappointment, but the stock may well have fared better in a stronger market. With the stock down 15% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Before forming an opinion on SH Group (Holdings) you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.
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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 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.