How Much Did Hengan International Group's(HKG:1044) Shareholders Earn From Share Price Movements Over The Last Three Years?

Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Hengan International Group Company Limited (HKG:1044) shareholders, since the share price is down 36% in the last three years, falling well short of the market decline of around 1.7%. It's up 3.7% in the last seven days.

View our latest analysis for Hengan International Group

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the unfortunate three years of share price decline, Hengan International Group actually saw its earnings per share (EPS) improve by 7.1% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

Given the healthiness of the dividend payments, we doubt that they've concerned the market. It's good to see that Hengan International Group has increased its revenue over the last three years. But it's not clear to us why the share price is down. It might be worth diving deeper into the fundamentals, lest an opportunity goes begging.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

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. So we recommend checking out this free report showing consensus forecasts

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Hengan International Group's TSR for the last 3 years was -27%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Hengan International Group shareholders are up 1.0% for the year (even including dividends). But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 1.3% endured over half a decade. So this might be a sign the business has turned its fortunes around. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Hengan International Group , and understanding them should be part of your investment process.

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.

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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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