Further weakness as HMC Capital (ASX:HMC) drops 8.1% this week, taking one-year losses to 40%

Investors can approximate the average market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. That downside risk was realized by HMC Capital Limited (ASX:HMC) shareholders over the last year, as the share price declined 41%. That's disappointing when you consider the market declined 3.4%. On the other hand, the stock is actually up 34% over three years. Even worse, it's down 15% in about a month, which isn't fun at all. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

After losing 8.1% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

View our latest analysis for HMC Capital

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

HMC Capital managed to increase earnings per share from a loss to a profit, over the last 12 months.

When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action. But we may find different metrics more enlightening.

HMC Capital managed to grow revenue over the last year, which is usually a real positive. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

It is of course excellent to see how HMC Capital has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling HMC Capital stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

HMC Capital shareholders are down 40% for the year, (even including dividends), but the broader market is up 3.4%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Investors are up over three years, booking 13% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for HMC Capital you should know about.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.