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One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the D&G Technology Holding Company Limited (HKG:1301) share price is up 52% in the last three years, clearly besting than the market return of around 23% (not including dividends). On the other hand, the returns haven’t been quite so good recently, with shareholders up just 29%.
D&G Technology Holding isn’t currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That’s because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
Over the last three years D&G Technology Holding has grown its revenue at 1.1% annually. Considering the company is losing money, we think that rate of revenue growth is uninspiring. The modest growth is probably broadly reflected in the share price, which is up 15%, per year over 3 years. The real question is when the business will generate profits, and how quickly they will grow. Given the market doesn’t seem too excited about the stock, a closer look at the financial data could pay off, if you can find indications of a stronger growth trend in the future.
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on D&G Technology Holding’s earnings, revenue and cash flow.
A Dividend Lost
The share price return figures discussed above don’t include the value of dividends paid previously, but the total shareholder return (TSR) does. Many would argue the TSR gives a more complete picture of the value a stock brings to its holders. Over the last 3 years, D&G Technology Holding generated a TSR of 55%, which is, of course, better than the share price return. Although the company had to cut dividends, it has paid cash to shareholders in the past.
A Different Perspective
Pleasingly, D&G Technology Holding’s total shareholder return last year was 29%. That’s better than the annualized TSR of 16% over the last three years. These improved returns may hint at some real business momentum, implying that now could be a great time to delve deeper. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
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 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.