Stock pickers are generally looking for stocks that will outperform the broader market. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term Far East Horizon Limited (HKG:3360) shareholders have enjoyed a 42% share price rise over the last half decade, well in excess of the market return of around 31% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 27% in the last year , including dividends .
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).
Over half a decade, Far East Horizon managed to grow its earnings per share at 11% a year. This EPS growth is higher than the 7% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 5.81.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into Far East Horizon's key metrics by checking this interactive graph of Far East Horizon's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Far East Horizon the TSR over the last 5 years was 67%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Far East Horizon provided a TSR of 27% over the last twelve months. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it's actually better than the average return of 11% over half a decade This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Far East Horizon better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Far East Horizon you should be aware of, and 1 of them can't be ignored.
We will like Far East Horizon better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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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. 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.
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