Dah Sing Financial Holdings (HKG:440) stock performs better than its underlying earnings growth over last year

If you want to compound wealth in the stock market, you can do so by buying an index fund. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Dah Sing Financial Holdings Limited (HKG:440) share price is up 34% in the last 1 year, clearly besting the market return of around 2.6% (not including dividends). So that should have shareholders smiling. Unfortunately the longer term returns are not so good, with the stock falling 7.8% in the last three years.

Since the stock has added HK$751m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Dah Sing Financial 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. 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).

During the last year Dah Sing Financial Holdings grew its earnings per share (EPS) by 30%. We note that the earnings per share growth isn't far from the share price growth (of 34%). So this implies that investor expectations of the company have remained pretty steady. It makes intuitive sense that the share price and EPS would grow at similar rates.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Dah Sing Financial Holdings has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Dah Sing Financial Holdings' TSR for the last 1 year was 47%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's nice to see that Dah Sing Financial Holdings shareholders have received a total shareholder return of 47% 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 0.9% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. For example, we've discovered 1 warning sign for Dah Sing Financial Holdings that you should be aware of before investing here.

For those who like to find winning investments this free list of undervalued 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 Hong Kong exchanges.

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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.