We think intelligent long term investing is the way to go. But along the way some stocks are going to perform badly. For example, after five long years the China Distance Education Holdings Limited (NYSE:DL) share price is a whole 68% lower. That is extremely sub-optimal, to say the least. And some of the more recent buyers are probably worried, too, with the stock falling 31% in the last year. Furthermore, it’s down 21% in about a quarter. That’s not much fun for holders.
See our latest analysis for China Distance Education Holdings
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.
During the five years over which the share price declined, China Distance Education Holdings’s earnings per share (EPS) dropped by 4.0% each year. This reduction in EPS is less than the 20% annual reduction in the share price. So it seems the market was too confident about the business, in the past.
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of China Distance Education Holdings’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. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, China Distance Education Holdings’s TSR for the last 5 years was -61%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
China Distance Education Holdings shareholders are down 31% for the year (even including dividends), but the market itself is up 7.9%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 17% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.
China Distance Education Holdings is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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 editorial-team@simplywallst.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.